Benefits of a 529 Plan
If there is one fact that many parents can agree on today is that a college education can be awfully expensive. Therefore, if you want to ensure that you provide your kids with the chance to undergo a college degree, you have to ensure that you make all the financial plans necessary. It can be difficult, especially if you have an incredibly low income, but there are always ways to do this.
A 529 plan is among the many options you can use to prepare for the costs that will come along the way when paying for your children's education. Almost every state has a 529 plan that it offers to the people in it. All you have to find out is whether your state has a 529 plan and how the plan works.
What is a 529 plan?
This is a kind of savings and investment account that allows people to set aside money for educational expenses. The money you save in the account grows without being taxed and you can make withdrawals, as long they qualify for the aforementioned educational expenses. The name of this plan is coined from the section of the IRS code.
Types of 529 plans
There are two major types of 529 plans. They include 529 college savings plans and 529 prepaid plans.
529 college saving plans
This is the most common type of 529 plan among most states. In this plan, your money grows tax-free, and you can withdraw it without being taxed for different types of educational expenses such as tuition, board, and room, or even textbook expenses.
529 prepaid plans
This plan allows you to prepay all or part of the in-state public tuition, but you have to ensure that you lock in the tuition when making the payment.
How does the plan work?
Unlike the investment accounts that people open, the two types of 529 plans are always operated by the state. This ensures that you have an easier time when you are looking for the option that seems to be the best for you. One good thing about the 529 plan is that you are not restricted to contribute to the plan in your state, but instead, you have all the freedom you need to select the best for you by comparing the best 529 plans in several states.
The prepaid plan is always run by several private colleges rather than the states. Every 529 plan account must have an account owner, which is typically the parent and the beneficiary, who is typically the future student. As the owner, you can control the investment and have the right to select the beneficiary of said account. No one is limited to contributing to the 529 plan since there are no age limits or no income contributors.
What states offer 529 plans?
Different states have different types of 529 plans, and therefore, you have to know which states offer which plan so that you can have an easy time selecting the state where you will be contributing to the plan. Let's look at the states that offer the 529 plan and what plan you can get in these states.
529 college saving plans
The states that offer 529 college saving plans include Alabama, Alaska, Arizona, Arkansas, Colorado, California, Idaho, Iowa, Kansas, Illinois, Indiana, Hawaii, Georgia, Louisiana, Kentucky, Michigan, Maine, Minnesota, Massachusetts, Maryland, Mississippi, Montana, New York, New Jersey, New Hampshire, Nevada, Nebraska, New Mexico, North Carolina, Ohio, North Dakota, Oregon, Rhode Island, Pennsylvania, Texas, Utah, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin, and Washington.
529 prepaid plans
Florida, Michigan, Nevada, Texas, Mississippi, Washington, Massachusetts, and Maryland are the states that will offer you the 529 prepaid plans.
The benefits of a 529 plan
If you have never thought of having a financial plan that will help you take your kids through college without struggling so much, you should think about the 529 plan. It comes with so many benefits that you have never imagined. Just try it, and you will live to enjoy the following benefits. However, when you select the 529 plan that is best for you, you have to ensure that you find out what states are they available in. The following are some of the benefits of a 529 plan.
It provides you with a tax break
This is one of the major benefits of a 529 plan. The plan always comes with a tax deduction or credit for your contributions to the plan. Therefore, your investment will grow on a tax-benefited basis. When you withdraw the money, it is never taxed as long as you use it for qualified education costs.
The plan is among investment accounts that require low maintenance
You can open the 529 plan account online or even through your financial advisor. If you prefer to set it and forget it, you have to choose an automatic investment plan linked to the payroll or bank account deduction plan. Therefore, there is not much for you to do when contributing to this plan.
The plans are flexible
The 529 plans provide the same benefits to all the owners despite their income amount or the amount they contribute towards the plan. Therefore, everyone has the chance to invest in the 529 plan that is best for them despite where you live or the college your child will attend since the plans are flexible.
One can use the plan to fund for their further education
If you are aged 18 and have a United States social security number, you can open an account for your 529 plan. You can use the amount you contribute and can be used for your further education. Therefore, this is a good way to save if you plan to continue with your studies in the future.
The plans do not expire
The other benefit of the 529 plans is that they do not expire. Even if your child does not use the entire amount in your account, you have the chance to change the beneficiary at your discretion. Therefore, a sibling or any person in the family can benefit from the 529 plan account funds since the account does not expire.
With all the above information, you may now be convinced that a 529 plan is greatly beneficial, and you should select the best for you. However, this can be somehow tough for the first timers. All you have to know is the factors you should consider when selecting the best 529 plan. These factors include the state tax benefits, initial investment amount, and investment choices. These factors will help you select the best plan, and as soon as you decide, it is time for you to contribute towards your kids' college education expenses.