With very few exceptions, paying tuition for a college education is simply beyond most families’ means. It is been well documented and discussed -- going to college is a matter of extreme privilege for those on low incomes who struggle even to feed their families. For people who want to gain a university degree without getting helplessly in debt there may, however, be a viable solution they know nothing about: a 529 account for college savings.
What is the Difference Between a 529 Account and Other College Savings Programs
This is a program wherein parents or guardians can get a prepaid college tuition plan for their kids in a relatively affordable manner, without having to pay anything in the way of capital gains taxes. There are two different options available: The 529 Prepaid Tuition Plan or another type, known as the 529 Qualified Tuition Plan.
There are, of course, other options for parents like the Coverdell Education Savings Account, for example. This is a school savings plan that can be used for elementary and/or high school expenses, as well as for college tuition. What is especially advantageous about the 529 College Savings Accounts though, is that, generally speaking, you do not have to concern yourself with residency restrictions. (A few states require that both the contributor and the account beneficiary live in the state where the account was established, but there are not many that enforce this.) Another perk of a 529 account is that you do not ever have to pay federal taxes -- even if you are gaining substantial interest.
How exactly does the 529 account work
Well, it is a prepaid college tuition fee -- which means you can pay for your child’s education well before he or she ever starts college. The money can be used to finance education costs like college tuition fees, any incurred boarding expenses, as well as payment for books, school supplies and other school fees. It is certainly best to get the plan when the child is still very young because more substantial benefits are available in such plans as compared to the more conservative investment plans offered to those who are about to enter college.
If you already have a 529 account, you are assured that you will not have to pay federal taxes for withdrawals through the year 2010. After that, the U.S. Congress will decide whether or not to extend the tax-free feature or take the alternative route.
If you want to build a college savings fund the easy way then the best choice for now is the 529 account. The other account types are worth considering as well, so you will have to do the research to determine which one is the right account for you before you invest your money. Make sure you have familiarized yourself with the intricacies of 529s or other accounts before signing on the dotted line.
Written by GetPreQualified.com Editorial Staff. This Article is designed to be of general interest and should not be considered legal advice. The specific information discussed may not apply to you. Before acting on any matter contained herein, you should consult with your personal legal adviser.
