529 College Savings Plans
What are 529 College Savings Plans? You likely know at least some of the basics: it’s an education savings plan designed to help families set aside designated funds for eventual college costs. Its name is derived from Section 529 of the Internal Revenue Code, which created these types of plans in 1996.
Just about every state has at least one 529 College Savings Plan available and the plans can differ from state to state. You do not have to invest in a 529 College Savings Plan in your own state, or use it to fund education in your state school. So, if you’re from Pennsylvania, you can invest in a New York 529 College Savings Plan and send your son or daughter to a California college. It’s that flexible.
There are plenty of reasons why a 529 College Savings Plan makes sense. Here are just a few…
The 529 College Savings Plans provides exceptional tax breaks. Although you cannot deduct your contributions, your investment grows tax-deferred and distributions to pay for your child’s college costs are federally tax-free.
In addition to federal tax benefits, you may be able to take advantage of state tax breaks. If your own state does not offer benefits, you have the ability to choose and invest in another state’s more favorable plan.
Control of funds
You (not your son or daughter) decide when and why withdrawals are taken. Most 529 College Savings Plans let you reclaim the funds for yourself whenever you wish with no questions asked. Keep in mind that the earnings portion of the non-qualified withdrawal will be subject to income tax and an added 10% penalty tax.
Simplified maintenance and reporting
All you do is complete a simple 529 College Savings Plan enrollment form, make your contribution, or sign up for automatic deposit. Then you can sit back and watch the funds accumulate. You won’t even need to file a Tax Form 1099 until you actually make withdrawals.
Each year – 529 College Savings Plan program permitting – you may rollover your account to another state’s program or switch to a different option within your program. The only caveat is that no such rollover has occurred in the prior 12 months. There is no federal limit on how often you may execute these changes. And, you may switch the account beneficiary to another qualifying family member – a son, daughter, or first cousin — at the same time, particularly useful in the event that your original beneficiary chooses to forego a college education.
No restrictions on eligibility
Best of all, everyone is eligible. You can put in as much money as you want – over $300,000 per child in many state plans – with no income or age restrictions.
Later, you can use these qualified distributions – without federal tax or penalty – for any of the following tuition, fees, books, supplies, room and board, and computer, software or Internet services particularly required for coursework. Speak with a BeamaLife College Savings Plan expert at (800) 554-7822 for the top college savings plans or complete “No Obligation” information request form now.