529 College Savings Plan Basics
College for many people is one of the greatest times of their lives. It is a time where one begins to mature into an adult and find out who they truly are. Not to mention a greater earning potential (generally speaking.) However, it is no secret that college is EXPENSIVE and unfortunately it doesn’t seem it will become any cheaper. Not everyone will be able to pay for their kids complete higher education and THAT’S OKAY! A little something can go a long way, especially if you start early.
This article today will be discussing one of the most common ways to save for college, a 529 plan.
WHAT IS A 529 PLAN?: A 529 plan is a college savings account named after the section of the IRS code that created them.
WHAT ARE THE BENEFITS?: Although I believe the biggest benefit of a 529 plan is the fact that it identifies a specific account that keeps people accountable to saving…..there are many other great benefits.
A 529 plan allows for tax deferred investment. This means that as the investments in the account are growing, you don’t have to pay taxes on the growth along the way. This means more money that can compound over the years.
Here is the kicker, as long as you use the money for QUALIFIED EDUCATIONAL EXPENSES, you do not have to pay taxes when you take the money out. Awesome!
Another great benefit is flexibility. ANYONE can contribute to the account on behalf of the beneficiary.
WHAT If THE BENEFICIARY DOESN’T GO TO COLLEGE?: If the beneficiary doesn’t attend a qualified higher education establishment, you can switch the beneficiary. You are able to transfer the benefit to a qualified family member (i.e. brother, sister, Mother, Father, First Cousin.) The worst case is if the beneficiary does not go to college and there is no eligible beneficiary to transfer to, you can take the money out of the account. You will have to pay taxes on the growth and a 10% penalty. Hey, at least you had several years of tax deferred growth, not the end of the world.
WHAT CAN I SPEND IT ON?: Anything related to qualified educational expenses. Common expenses are room and board and tuition. However, you can also use it to purchase a computer, software, textbooks, supplies…. basically anything related to school.
HOW DO I ESTABLISH ONE?: My advice would be to work with an advisor. They can help you budget, estimate costs, set expectations, and help you choose your investments.
SUMMARY: A 529 plan is one of the best ways to save for college. The flexibility and tax benefits make it one of the most popular options.
If you would like more information on how you can get started with a 529 plan, please do not hesitate to call Granite Wealth Management at 1-888-612-5391 or email at firstname.lastname@example.org and we would be glad to help you.