Saving Now for College Pays Later: 529 College Saving Plans
It’s no secret that going to college today costs more money than it did 10 years ago. If you’re a parent who has already started saving for your student’s college –congratulations! If not, one option to consider is a 529 College Savings Plan. A 529 College Saving Plan is a tax-advantaged investment account that allows you to save for future college costs. It’s usually offered by a state or educational institution.
The following are a few things to know about 529 College Savings Plans:
- There are basically two types:
- A college savings plan offers tax-free earnings on growth. Its works similar to a 401K retirement plan. You put money in and choose your investment options. Any withdrawal is tax-free when the funds are used to pay for college and K-12 education expenses. Expenses include tuition, books, mandatory fees, computers, and room and board.
- A prepaid tuition plan allows a parent to lock in today’s college rates, in a prepaid plan that can be used for the same value 10 to 20 years later at in-state schools. Most, but not all, prepaid plans can be converted if the student decides to go to an out-of-state school. Not every state offers prepaid tuition plans.
- The student has the liberty to move around – they can use the funds regardless of the state the student lives in, or where the student attends college.
- A 529 Plan can be shared. If the beneficiary decides not to go to college or has remaining funds, the beneficiary on the account can be changed to be another family member.
- There may be yearly minimum and maximum contribution limits. Check with your state and your plan.
- A parent can own the account while the student is the beneficiary. This helps when the student applies for financial aid, because, compared to the student’s assets, a smaller percentage of parental assets are presumed to be available for the family to pay for college.
In Alaska, there is the UA College Savings Plan, which also allows parents and students to contribute to their investment plan automatically with their annual Permanent Fund Dividend. As long as the funds are used for education expenses at qualifying schools, the student can study anywhere they choose, in-state or out-of-state.
For more information go to UA College Savings Plan.
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