Erickson Financial Solutions Blog
1 minute video: What's the Best Way to Set Aside Funds for Future College Costs?
Saving for College Costs.
One way to plan for your children's college education is through a 529 plan which is an education savings plan operated by a state or educational institution. The name 529 comes from section 529 of the Internal Revenue Code which created these types of savings plans in 1996. Although contributions are not deductible on your federal tax return, your investment receives tax-deferred treatment and qualified distributions to pay for the beneficiary's college costs. Qualified withdrawals come out federally tax-free, non-qualified withdrawals are subject to federal and state income tax and a 10% penalty.
College savings plans offered by each state differ significantly in features and benefits. The optimal plan for each investor depends on his or her individual objectives and circumstances. In comparing plans, each investor should consider each plans investment options, fees, and state tax implications. State tax deductions vary by the state of issuance. Plan assets are professionally managed either by the state treasurer's office or by an outside investment company hired as the program manager, but you have some control over how your investment is managed. You may be able to change to a different option in a 529 savings program every year although plan restrictions may apply.
Everyone is eligible to take advantage of a 529 plan and the amounts you can contribute are substantial. The availability of tax or other benefits may be conditioned on are subject to enrollment, maintenance, administrative, and management fees, and expenses per beneficiary. Plans can vary greatly and care should be given to fully understand your 529 plan before you invest