529 college savings plan

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529 College Savings Plan

An account into which persons deposit funds to save for university-related expenses. The funds in a 529 college savings account are tax-deferred and, if used directly to pay for college, tax exempt at the federal level. They are sometimes exempt at the state level as well. The plan exists in an attempt to make post-secondary education more affordable. See also: IRA, 401(k).

529 college savings plan.

Each 529 college savings plan is sponsored by a particular state or group of states, and while each plan is a little different, they share many basic elements.

When you invest in a 529 savings plan, any earnings in your account accumulate tax free, and you can make federally tax-free withdrawals to pay for qualified educational expenses, such as college tuition, room and board, and books at any accredited college, university, vocational, or technical program in the United States and a number of institutions overseas.

Some states also exempt earnings from state income tax, and may offer additional advantages to state residents, such as tax deductions for contributions.

You must name a beneficiary when you open a 529 savings plan account, but you may change beneficiaries if you wish, as long as the new beneficiary is a member of the same extended family as the original beneficiary.

In most cases, you may choose any state's plan, even if neither you nor your beneficiary live in that state. There are no income limits restricting who can contribute to a plan, and the lifetime contributions are more than $300,000 in some states.

You can make a one-time contribution of $60,000 without incurring potential gift tax, provided you don't make another contribution for five years. Or, you may prefer to add smaller amounts, up to the annual gift exclusion.

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Parents' concerns persist despite the fact that 529 plans "already offer a great deal of flexibility, with the ability to easily change beneficiaries (to another child or a grandchild, for example), and allowing parents to withdraw amounts equal to scholarships received without facing penalties.
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Dynarski (2004b) finds that the advantages of 529 plans rise sharply with income.
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Particular emphasis was placed on usage of and beliefs concerning 529 plans.
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com, says matching grants, or funds, have been around for about a decade and are usually disbursed by state-sponsored 529 plans.
Some opponents of 529 plans point out they charge higher fees than mutual funds.
529 Plans can be used to help pay the costs of qualified higher education expenses at colleges nationwide.
To help parents save now for their children's future college educations, state lawmakers in 49 states and the District of Columbia have authorized 529 plans (named after Section 529 of the Internal Revenue Code, which created them in 1996).
For many people 529 plans arc the best way to save for college.