About College Savings Plan
A college education tends to be very expensive. Because of this, the government encourages saving for college well in advance of enrolling. A 529 plan is the most widely known savings plan. Named after section 529 of the Internal Revenue Code, the plan may be a tax-advantaged investment for a designated beneficiary/student. Saving early and saving often and contributing to your 529 plan, is a good way to cover much of the cost of a higher education. Should there be any savings left after tuition and expenses have been covered, the remainder may be used by another qualified member of the family. However, there may be a few disadvantages of 529 plan, like the lack of tax exemption at the federal level. Also the investment may not be used to pay off the college loan debts and or any other form of debt.
Features of This College Savings Plan
There are two types of 529 plans: savings and prepaid. The savings plan lets you regularly contribute your own saving to the account. The accumulated savings may then be used by the student for any eligible college expense. Another great feature of the plan is that it may be used for any college and university in the United States. The prepaid plan, on the other hand, is more restrictive. Only 18 US states allow such a savings plan. It allows you to pay for college tuition at today's rate for the future education of a student. However, you or the student must be the resident of the state that sponsors prepaid plan. The funds may be used in a private, out of state university as well.
Benefits of This College Savings Plan
Post high school education may be desired by many but it is not always affordable. It is important for a prospective college student and the parents to have a college savings plan. The 529 plan may allow a student to purchase tuition, room and board, books and other necessary equipment and supplies, for an accredited college or university, including a vocational school in the United States. The investment from the plan may further be used for studies in a college or university outside of the United States as well.
Q:Does a college savings plan include income tax benefits?
A:Students who are saving for college may benefit from the tax free federal income option. Under this option, you don't have to pay taxes on earnings and funds which that are used for education expenses. These expenses include tuition, books, supplies, room, and board.