A look at the benefits of a 529 plan

Posted on January 15th, 2013

A 529 plan is a savings program that is created by a state or a college to help families put away money for higher education. The program, which was started in 1996, is named after Section 529 of the Internal Revenue Service (IRS)’s tax code, which made these kinds of accounts a possibility.

Today, most states offer some kind of 529 option to qualified residents, although the terms of the program differ depending on where it is offered. Although benefits vary state to state, when it comes to 529 plans, a family doesn’t have to dedicate the savings towards an in-state tuition, but can usually put them toward any school of their choosing.

Parents, grandparents or the student themselves will make contributions into the account that will go exclusively to help paying for college. At the end of the year, contributors will receive a tax deduction from the state.

Although this account isn’t deductible through your federal taxes, the investments you make to pay for the beneficiary’s college costs come out federally tax-free thanks to the Pension Protection Act of 2006.

This is the perfect way for parents to save not only for their younger students, but also if they are planning on returning to school themselves in the future. If you are in a career that will eventually require you to earn another degree somewhere down the road, starting one of these savings plans immediately will make paying for further education much easier.

Plans like this are also extremely low-maintenance, as the assets are professionally monitored by the state or a hired financial professional.

Category: Financial Aid