Invest In Section 529 Plans To Save For College Expenses
A section 529 plan is an account which allows you to save and invest money for higher education of your child. Section 529 plan is a state sponsored plan formed to aid parents finance their childs higher education charges.
Section 529 plans are of two types College Saving Plan and Prepaid Tuition Plan.
Section 529 plans are named after the section 529 of tax code which governs them. The people who invest in a section 529 plan contribute to an account which is managed by the investment board of the state in which the account is opened. In some cases, the role of the investment board can also be fulfilled by the treasury board of the state.
Section 529 plans are provided in 18 states in the form of prepaid tuition plans. The same are offered in 35 states in the form of college savings plan. Tax laws and rules differ from state to state. Both the varieties of section 529 plan allow tax-deferred growth in the account. From the year 2002, the money taken out from a section 529 plan which is used to pay the expenses of higher education of a child are tax-exempted.
Section 529 plans are monitored by investment companies. They are subject to investment guidelines and contribution requirements. Anyone can contribute to these accounts. If you are withdrawing money from the account then it will be taxed at the child's tax rate. In many of the cases, money is invested in the shape of stocks, mutual funds, or bonds.
There is one drawback of the section 529 plan; it is that if you withdraw money for any other cause other than paying for higher education expenses then it will be taxed according to federal tax-rates. Also, there will be an additional ten percent penalty. The basic charge of all the savings will be with the investment company. The company will manage your account and take care of the flow of money in your account. The investment company will charge fees for its services rendered to you.