Section 529 Plans Can Provide Tax Benefits for
Children and Adults
A 529 plan is a tax advantages investment and savings
program designed to encourage saving for the higher education
expenses of a designated beneficiary. Section 529 of the
Internal Revenue Code provides this benefit.Each state has its own
plan. There are also private plans.
520 Plan contributions are NOT TAX DEDUCTIBLE. Nevertheless,
the plan grows tax free, and if withdrawn properly, it is not
taxable.
Types of Plans
There are two types of plans: Prepaid and Savings plans.
Prepaid plans allow you to lock-in tuition at
today's rate. If tuition radically increases, you have paid the
current lower rate. If tuition rates remain stable (doubtful!)
then you have lost the investment interest and flexibility.
Prepaid Plans may be administered by the States or private
businesses.
Savings Plans allow tax free growth of your
invested money without any guaranteed return. Usually, savings
plans are invested in mutual funds and are subject to the vagaries
of the stock market. Savings Plan may only be administered by the
States.
529 Plan Money
Money from a 529 plan can be used for
- Tuition
- Fees
- Books
- Supplies and Equipment
- Room and Board
If the money is not used for Education, then
the withdrawals are subject to a 10%
tax penalty.
