![]() ![]() Like an IRA (see below), you can open it at a range of low cost institutions and invest it anything from an FDIC-insured savings account to individual stocks. However, you have more flexibility in some ways with how the money is invested and used. This is a plan with similar tax benefits and penalties to the 529 plan and it's generally treated the same way for financial aid purposes too. If you're worried about taking any investment risk, another option is to purchase tuition units in a 529 prepaid tuition plan instead. Financial guru Clark Howard has set up a guide to what he thinks are the best 529 savings plans based on the investment options and what tax breaks and credits your state may offer. Finally, there's no penalty in the unthinkable event that your child passes away.Īnother downside is that you're limited to the investment options offered by the various state plans. You can also use the money for anyone related to your child like a sibling or even you or your spouse if someone else in the family goes to school instead. If your child earns a scholarship, you can withdraw the amount of the scholarship penalty-free. The main downside is that using the funds for something other than qualified education expenses can subject you to a tax and 10% penalty on earnings that you withdraw. (A 529 plan in a third party's name, like a grandparent, doesn't affect financial aid at all.) It's also a great estate planning tool since you can give up to 5 years’ worth of gift tax exemptions all at once and the contributions are removed from your taxable estate. If you open the account in your name, only up to 5.64% is counted for financial aid purposes and you maintain control over the funds even after your child reaches the age of majority. The earnings are tax-free if used for post-secondary qualified education expenses (and up to $10k a year for K-12). There are several benefits of using a 529 savings plan. ![]() ( Seven states also provide a state tax break if you contribute to any state's plan.) Some states offer state tax deductions or matching funds for residents who contribute to their home state's plan. These are set up by each state, although you can contribute to any state's plan regardless of where you live or where your child goes to school. Perhaps the most popular option is a 529 savings plan. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |