529 PLANS
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free, and if withdrawn properly, it is not taxable.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.
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