Have you the answer to the question “What is a 529 Plan?”. There are over 10 different answers to how a parent can save for their children’s higher education. Some would suggest investing in stocks, starting a dedicated savings account, or to tossing some quarters into a saving can.
In todays’ article, I will be guiding you on a very smart way to saving and how it works. This can be done with the help of a 529 plan.
What Is A 529 Plan? -How Does It Work?
529 Plan is a tax-advantaged savings plan that is sponsored by states. It helps families to save for their children’s education costs. Over the years, the 529 plan will grow tax-free, and withdrawals will not subject to income tax. This is as long as they are used for educational purposes such as tuition fees, room and board, and books.
Benefits of 529 Plan
Here are of the benefits of investing in this plan compared to other ways of saving college:
Hard To Argue With Tax-Free Growth
It offers some reasonable tax-related advantages. The plan account will grow-free and won’t be subject to any capital gains taxes. Depending on your residence, you can be able to secure a tax deduction on your state’s income taxes.
Investments Can Have a Nice Return
It is very well advisable to open a savings account for your children’s education. These days, the average savings plan account earns .05% in interest, and this is virtually negligible. With this plan, you can invest in either stocks or market-based investments, which is better in terms of growth.
Control Can Be A Good Thing
Unlike other savings plan, funds can only be made accessible to your child when they 18 to 21. But with this plan, they are totally in control. With this, you can be 100% sure every dollar in the plan is going directly toward paying for college costs.
There are Age-Based Options
With the 529 plan, you can select a group of investments depending on the age of your child. This mean that if you start a 529 plan when your child is still a toddler and you are optimistic about risk, then you can opt for a more conservative plan. On the other hand, if your child is already in middle school and “Risk” is a major concern to you, then you may want to go with a 529 plan that relies majorly on stocks or other investments that can increase in value within the period of investment.