Saving for College and the Benefits of 529 Plans
The 529 plan is a relatively new addition to the college savings world and can help parents breathe easier as they stress over the ridiculous inflation of secondary education costs. These accounts have several advantages that allow many families to save for college so they can avoid taking out a loan to cover tuition. They have excellent tax benefits, won’t hurt your chances for financial aid and remain in the control of the child’s parents.
When you contribute to a 529 plan, the money is invested and allowed to grow tax free. This is important as it won’t hamper the percentage growth that the funds get from being invested well. Additionally, when you use the money on qualified educational expenses, it is not taxed at that time either. This also allows account holders to get the most out of their investment. While you can’t deduct the contributions you make to the plan from your federal tax return, certain states will allow you to deduct the contributions if you have a state sponsored 529 plan. This makes those available through the states more attractive than the privately funded options.
Most students go through the laborious process of petitioning for financial aid when they apply to schools. Sometimes the results of this process are disappointing if the prospective student is deemed to have too many assets to be eligible for assistance. This can happen if there is a savings account in the students name with funds to pay for college. Thankfully the 529 does not suffer from this flaw. Even though the account is listed under the child’s name, only a small percentage of its value counts towards his or her assets when applying for aid. The rest of the money falls under the category of parental assets, which doesn’t hurt the odds of receiving some kind of assistance.
While a child’s name is listed on the account, he or she is not the one who has control of the funds contained in it. The parents remain the custodians of the money so their child doesn’t have access to spend it. Many plans also allow you to change the name on the account after its inception; you may want to do this if your child decides not to go to college but you have another child who will. This flexibility could allow you to use the funds on more than one child with a single account if you start saving early and invest well.
In order to pay for college without burying yourself in debt along the way, you have to be prepared and get started early. The 529 plan is an excellent way to do this as the contribution limits are in excess of $200,000 yearly and have great tax advantages. It can allow families to save whether they want their child to attend a public or private university. In addition, a 529 plan remains in parental control and therefore does not have a dramatic effect on the ability of a student to receive financial aid. From nearly every angle, this college savings plan is an opportunity for both parents and students to get through college with a few dollars to spare.