College 529 Plans 

529 Plan Save for College


7 Reasons Why Having a 529 Plan is a Great Way to Save for College
by Minya K. Irby | Living Well | Thursday, November 14, 2013 

The most effective way to save for a college education for yourself or a loved one is with the use of a 529 plan. A 529 plan is a qualified tuition program designed to assist an individual in achieving higher education through the prepayment of tuition or by allowing an individual to make cash contributions to an account on behalf of a beneficiary for qualified higher education expenses. These programs are typically established and maintained by the state. Depending on which state you reside, you can either participate in the prepaid tuition plan or the savings plan, but not both-- even if your state has both plans available. Despite that, having a 529 plan is a great way to save for college for the following seven reasons:  

1. You control the funds. The purchaser of a 529 plan is the custodian and the custodian controls the funds until they are withdrawn.

2. It's easy to establish. Anyone can set up a 529 plan. Furthermore, giving the gift of higher education is among the most precious for anyone to receive, and in a 529 plan you can give the gift to anyone, including yourself. Your beneficiary does not have to be a dependent or child. You can set up a 529 plan for yourself, a relative or even a friend.  

3. Tax-free earnings. If you have read any of my past articles, then you know that I stress the goal of lowering or even eliminating taxes. So relating to that, a 529 plan allows you the opportunity to fund a college education using tax-free earnings. These plans are not typically subject to federal or state taxes as long as they are used for qualified education expenses of the beneficiary. The one drawback, however, is that they are not tax deductible.

4. It’s not limited to just paying the cost of tuition. These plans cover qualified education expenses, which include, but is not limited to tuition; room and board, tuition fees, books and new added expense computer technology, equipment and/or related services. Yes, your 529 plan can pay for internet service and software used for educational purposes.  

5. There are no state restrictions in contributing. You are not limited to contributing to your state’s 529 plan. These are competitive plans and you are allowed to contribute to out-of-state plans as well, many states offer incentives, so comparison-shopping is key.  

6. Any eligible educational institution counts. Your 529 plan is not limited to a four-year university. An eligible educational institution is any college, university, vocational school or other post-secondary education institution. To know if the educational institution you want to attend qualifies, check with the financial aid office. If the institution is eligible to participate in a student aid program administered by the U.S. Department of Education, it counts.

7. The benefits rollover. This feature is an exceptional feature considering that any amount distributed exceeding qualified higher education expenses are included in gross income and may be subject to an additional 10% tax, rolling over from one qualified tuition program to another or another beneficiary who is a member of the same family is fair game without tax consequences. However, there are certain IRS rules that apply in the rollover so be educated and versed on these rules prior to rolling over benefits. 

Photo credit: iStock Images


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