Many new parents are opening up college savings plans for their children, even as young as newborns, because the cost of college is ever increasing. Opening a 529 plan can be a smart way to save for college. A 529 plan has numerous tax, scholarship and matching advantages. The plans vary depending on your state’s laws. You can basically choose from two types of 529 college savings plans. You can either choose a prepaid plan or savings plan.
Prepaid College Plans
If you choose to start a prepaid college savings plan, you can purchase tuition credits at today’s rates and use them in the future. You do not have to be concerned about tuition inflation if you invest in the prepaid college savings plan. Even as tuition rates increase, you are only bound to pay the rate that was locked in on the day of opening your account. There are currently only eight states that administer the prepaid college savings plan.
These states include:
College Savings Plan
College savings plans basically give you an investment vehicle for saving funds for college without having to worry about taxation. You may invest in stocks, bonds or other high-yield investments and watch the funds grow. When you are ready to attend college, you can withdraw the funds without any tax implications.
Qualified Educational Expenses
When you withdraw the funds from a college savings plan, you may use them for eligible qualified educational expenses. You can use the funds for tuition, fees, room and board, equipment, supplies, and sometimes even on books. Any funds that are not used on a qualified educational expense may be subject to an additional 10 percent tax penalty.
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The Advantages of College Savings Plans
If you choose to save for college with a 529 plan, you can retain complete control over the use of the funds. As long as you are the named beneficiary of the account, you can withdraw the funds for any of your needs. One concern associated with opening a 529 plan is that a person may not be able to withdraw the funds in the event that they are needed for an emergency or other non-educational purpose. In the majority of states, individuals can withdraw the funds at anytime and use them in any way they wish. Before you sign up for a college savings plan, you may want to make sure that you will be able to access the funds at anytime if this concerns you.
Many 529 plans also require low start-up costs. You do not have to worry about having thousands of dollars to start a college savings plan. You can contribute as much or as little as you would like to a 529 savings plan.
Also, you can always transfer the assets within a 529 savings plan to other family members. If you receive a full scholarship to a college, you can then transfer the funds to a sibling if you wish. No tax penalty exists for transferring a 529 plan to other family members.
If you are interested in saving for college, you should seriously consider opening a 529 savings plan. Starting a savings plan can help you to plan for college and will also make your life easier once you are in college. You can ensure that you will be able to focus on succeeding in your studies and will not have to work to produce income for your college expenses.
If you have any questions regarding budgeting for a college savings plan or need help paying off debts so you can start saving for college, give us a call today! We can be reached at 866-699-2227 or visit us online at www.advantageccs.org and we’ll do our very best to help you!