Parenting is an exercise in making mistakes, especially the first time around. One thing that we got right was setting up a 529 for our kids. Sure, we could have started earlier and we could have added a bit more each month, but by the time each went off to school they had a nice account to help out.
For Americans a 529 plan can be a smart way to save for education expenses while taking advantage of tax benefits and investment growth opportunities
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. It is a state-sponsored investment plan that enables you to save money for a beneficiary (usually your child or grandchild) and pay for education expenses. A 529 plan offers tax benefits when used to pay for qualified education expenses for a designated beneficiary. The funds in a 529 plan are yours, and you can always withdraw them for any purpose, but the earnings portion of a non-qualified distribution will be subject to ordinary income taxes and a 10% tax penalty, though there are exceptions.
There are two basic types of 529 plans: savings plans and prepaid tuition plans. Savings plans are the most popular type of 529 plan and work like a 401(k) or IRA by investing your contributions in mutual funds or other investments. Prepaid tuition plans allow you to pay for future college tuition at today's prices. With the way that tuition is rising each year this is great for those who have a nest egg.
529 plans can be used to pay for qualified education expenses from kindergarten through graduate school. 529s can also be used to pay off student loans and fund a Roth IRA.
We are not financial advisors, nor are we selling plans. Here’s a link to get more information:
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