| Saving for college has never been a cinch, but the | | | | maximum as college costs increase. The maximum |
| U.S. Congress has made it a little easier. Congress has | | | | amount you can invest in a 529 typically does not |
| made the tax benefits of 529 college savings plans | | | | include your earnings. For example, if the cap is |
| permanent, which is great news for parents saving | | | | $300,000 and you invest $295,000 but the earnings |
| for their child's college education. | | | | are $50,000, you will not have hit the maximum even |
| 529 plans are tax-advantaged savings accounts for | | | | though you have $345,000 in your account. |
| saving for college. A 529 account is opened on behalf | | | | Although your state offers a 529 plan, it's smart to |
| of a beneficiary, usually a future college student. You | | | | consider other states' 529 plans as well. Some 529 |
| invest money in the account over time and your | | | | plans underperform the market and others have high |
| returns grow tax free. The money is then withdrawn | | | | fees. If you decide to invest in another states' fund, |
| to pay for college or other education expenses and | | | | keep in mind that you won't get the state tax |
| you don't pay income tax on the growth when you | | | | benefits. Some states, such as Texas don't have |
| withdraw it. If you withdraw the money for an | | | | income taxes, so residents of these states should |
| expense other than qualified education expenses, | | | | shop around for a better deal on a 529 plan. Utah is |
| there's a 10% penalty plus you have to pay taxes. | | | | an example of a state that has low fees for its 529 |
| However, 529 plans are usually transferrable between | | | | plans for both in-state and out-of-state residents. |
| beneficiaries. So if you child gets a scholarship, you | | | | Also, some 529 plans are "direct funds" whereas |
| can move the rest of the money in the 529 plan to a | | | | others are "advisor funds". A direct fund means you |
| sibling, cousin, etc. | | | | can invest directly with the state or the 529 |
| All 50 states and Washington D.C. have 529 plans, | | | | manager. An advisor fund requires you to use a |
| and they each have slight differences. For example, | | | | qualified financial advisor to purchase the fund. |
| some states offer state tax deductions or credits in | | | | Some states also offer a variation on the traditional |
| addition to the federal tax benefits. They also have | | | | 529 plan called a pre-paid plan. A pre-paid tuition plan |
| various minimum investment requirements and | | | | lets you effectively "lock in" the future cost of a |
| maximum amounts you can invest over the life of | | | | college education. |
| the account. Most of these minimums are small -- | | | | Regardless of which 529 plan you choose, investing in |
| sometimes only $15. Maximums refer to how much | | | | 529 plans is a smart move to invest for college. |
| you can invest in the 529 savings plan over time. This | | | | Between the low minimum investment amounts and |
| number is typically enough to cover even the most | | | | the tax-free returns, a 529 is a great way to save |
| expensive colleges, and most states increase the | | | | for college. |