What better time than May 29 (5-29) to discuss 529 college savings plans? Whether you and your spouse are divorcing or not, saving for your children's college education should be part of your long-term financial plans.
Here we discuss the benefits of 529 college savings plans. If you are divorcing, make certain you and your soon-to-be ex are taking steps to assure the future education of your children.
Did you know:
- Money saved in a 529 plan is available to pay for expenses at a “college or other accredited post-secondary school” that participates in federal financial aid programs
- A 529 plan and its assets are more favorably treated than savings in other taxable accounts
- A student who receives a scholarship, can withdraw money from his or her 529 savings plan in the amount of the scholarship and not face a 10% penalty
Setting up a 529 college savings plan for your children is a great way for a parent to get a tax advantage and an ideal way to save for a college education. A 529 college savings plan can be used for the education of your child, yourself, or anyone else; this plan is surprisingly flexible.
A 529 plan, established to pay for college, graduate or vocational school may allow you to take advantage of federal, and maybe even state, income tax benefits. The earnings you put into a 529 account grow tax-free and withdrawals, as long as the money is used for qualifying education are also tax-free.
Here are the five biggest benefits of a 529 plan
- This savings account provides favorable treatment when applying for federal financial aid. Assets in a 529 plan are owned by the parent, not the child, and therefore won’t negatively impact the child’s financial aid package.
- If the college student is awarded a scholarship, some or all of the 529 savings can be “repurposed.” The owner of the account is allowed to withdraw the amount of the scholarship from the 529 plan without incurring the 10% federal tax penalty.
- A 529 college savings plan can be used by the parent/owner of the account for his or her own education. Anyone 18-years-old or older, who has a valid Social Security number, can open a 529 account. An individual can also contribute to a 529 account for a non-relative.
- When you contribute to a 529 plan, you may see a significant tax advantage in your federal and state taxes.
- Contributing to a 529 plan is a great way for grandparents or others to reduce the size of their taxable estates.
Whether you’re looking to save for your own college education or for your children’s education, a 529 plan might be the ideal savings vehicle to do just that.