529 college savings plans
Sunday, May 29, 2011
In most locations, the school year is over. But when it comes to paying higher education costs, students and parents need to do their financial homework year-round.
One subject they want to study is 529 college savings plans.
These accounts are named for the Internal Revenue Code section under which they were created. They also are a tax-saving way to bank bucks for college.
Today, 5/29, also is 529 Plan Day.
So it's only natural that the savings plan/tax code name is this week's By the Numbers figure.
Tax benefits of 529s: Contributions to a 529 plan aren't tax deductible, but the money you invest in the plan accumulates tax-free. Even better, when you withdraw account funds to pay for qualified education costs, those distributions are not taxed.
The 2009 stimulus bill beefed up 529 options, expanding the list of college and university expenses that can be paid for by account funds. They include tuition and fees; books, supplies and equipment; and computer technology, equipment or Internet access and related services if it is to be used by the student during any of the years he or she is enrolled at an eligible educational institution.
Every state administers at least one 529 plan. Many educational institutions also offer plans, too.
But you don't have to use just your own state's offering. You can shop around and set up an account beyond your borders. It might be a better tax move, however, to stay local. Many states offer additional tax advantages, such as a deduction on your state return, if you open an in-state account.
Here are a few more 529 tips.
Start early and encourage your kids to participate. By contributing to the account, from allowances or after-school or summer jobs, students will have a stake in their college education and paying for it. And parents can increase the funds by matching the youngsters' savings.
Give the gift of education. When graduations, birthdays and holidays roll around, a 529 contribtuion can be the perfect gift. Grandparents, for example, may contribute up to $13,000 each ($26,000 if married filing jointly) per year directly to a tax-advantaged 529 college savings plan without paying gift taxes. In addition, a 529 plan allows "accelerated gifting" of five years' worth of contributions; that's $65,000 per contributor or $130,000 if married at one time.
Automate contributions. According to Sallie Mae's "How America Saves for College" research, most savers (55 percent) make manual deposits; another third (32 percent) automate deposits to their college savings. Consider setting up an automatic investment plan so that you don't have to worry about making the contributions.
I know this is the middle of a holiday weekend, so don't worry about this tax and college saving stuff today.
But look into a 529 plan soon. You, your future college kid and your bank account will be glad you did.
- 529 facts
- Investing exodus: first 401(k)s, now 529 plans
- Filling out your pet's tax return and paying your kids' college costs
- Tax help for education costs
- Rags, riches and college costs
- School's back, along with the bills
- College Costs 101 (AW magazine; PDF)
- By the Numbers
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Savings Bonds and Premium Bond are very similar, but the savings bonds can be changed at any time of year, while the bond is redeemable once a year. Bond or can be purchased with a savings plan for retirement or a registered retirement income. Premium Bonds will always have a higher interest rate savings bonds that sell at the same time. You can buy a compound or simple interest form, and a guy can exchange with each other at any time.
Posted by: Konsumentkredit | Monday, July 11, 2011 at 05:29 AM
I sometimes think that 529 plans have limited applicability. For the very wealthy it would be better to use annual exclusion gifts for wealth transfer and then have oldest possible generation pay expenses when due (since tuition payments are gift tax exempt). Middle class families need to look closely at how the financial aid system works as part of college planning.
Posted by: Peter Reilly | Sunday, May 29, 2011 at 09:48 PM