Everyone knows higher education is an expensive venture. But, did you know there is special tax-advantaged accounts to help you save for college expenses? Based in section 529 of the tax code, these state-sponsored investment plans offer significant tax benefits. Many states recognize May 29 (5/29), as 529 Day, with special promotions and contests to further add value to these accounts.
There are two types of 529 plans. Prepaid tuition plans allow investors to purchase between one and four years of college tuition for a young child. When the child reaches college age, the plan pays out based on tuition rates at that time. The other type of 529 is a college savings plan, whose benefits can vary by state.
The major advantage of a 529 plan is that funds grow free from federal and state income tax. 529 withdrawals used for qualified higher education expenses are exempt from federal tax. In addition, some states exempt qualified 529 withdrawals from state tax. Factor in the ease of opening a 529 account, the relatively small initial and monthly contribution requirements, and the variety of institutions and expenses covered and you’ll find a 529 plan is a great way to begin saving for your child’s future educational expenses.
To learn more, contact your installation Personal Financial Management Specialist.