Part One: 529 Plans - Save for Your Child’s Future and Save on Taxes
529 College Savings plans are state-sponsored savings plans with tax advantages that may make it easier to save for college or other post-secondary education. The plans are named after Section 529 of the Internal Revenue Code, the section of the code that in 1996 gave states the authority to create college savings programs that are exempt from federal taxes. Today, nearly every state offers at least one 529 college savings plan.
The main advantage? Tax-free earnings.
The money in your 529 account grows free from federal taxes and usually state taxes while you save and can be withdrawn free from federal taxes and usually state taxes also if used to pay qualified higher education expenses, such as college tuition, fees, books, and generally room and board. Because the earnings are not taxed, your savings have the potential to grow faster in a 529 account than in a regular savings or investment account that is not sheltered from taxes.
If withdrawals exceed the beneficiary’s adjust qualified expenses for the year, the earnings portion of the excess will be subject to income tax and generally a 10% federal tax penalty.
You can open 529 accounts for anyone.
For example, you can open accounts for your children, grandchildren, nieces, nephews, and family friends. The beneficiary can be any age: newborn, child, or adult. You can even open an account for yourself to save for your own future higher education expenses.
Multiple accounts can be opened for the same beneficiary. So even if, say, your daughter has already opened at 529 account for your granddaughter you are welcome to open one for her also.
There are no income caps on who can contribute.
Even high-income individuals can open and contribute to 529 accounts to save for higher education expenses.
Copper leaf Financials’ team of CPAs and experienced wealth management advisors assist families in all of their financial endeavors - including planning for college. We know how to structure your investments with the most cost efficient and tax effective methods, so that you can work towards your goals and the students in your family can work towards their degrees. For more information call 802-878-2731.
See also: Ten reasons to Consider a 529 Plan