College tuition increases every year. The fear of student loan debt weighs heavily on parents. No one wants their child to start life buried in debt. College savings plans are a great way for parents to start helping now.
There are basically two types of 529 plans. These plans are offered by private companies or you can sign up with a state plan. They offer parents a plan that has tax advantages or one that locks in current credit costs. It’s important for parents to choose the best plan for their situation.
What is a 529 College Savings Plan?
This college savings plan offers tax advantages. It allows the student to use accumulated assets for any accredited or vocational school inside the United States. There are some foreign schools which qualify as well. Students may use the money for tuition, books and any other mandatory fees. There are no tax liabilities on the investment gains. There are 35 of the 50 states which offer tax deductions or tax credits for 529 College Savings Plans.
How do 529 Prepaid College Plans differ?
There is no savings account. Parents may purchase tuition credits within their state’s university system. As we continue to watch tuition costs increase year after year, this option takes advantage of today's price. It’s a smart choice for parents, but limits the child’s schooling options to those within their own state. Parents must be sure that their child will remain in-state. These plans are only offered by the state, not private companies.
Which one do you choose?
All states offer the 529 College Savings Plans but they don’t all save on taxes. Families living in one of the 35 states that offer tax relief will also give a student the freedom to choose a college out of state.
In one of the states that does not offer tax relief? Look for a plan that focuses on low account minimums, multiple investment options and low fees.