Save for College – Save on Taxes – the 529 Plan

A college education is more important than ever, and it’s never too soon to start planning and saving for a college education. With the costs associated with a higher education are rising steadily. It is more important than ever to understand the options for paying for college and to get out in front of them. One such option when it comes to saving for college education is the 529 College Savings Plan, otherwise known as a qualified tuition plan. Before you make any choices about how you’ll save for college, let PaydayLoansCashAdvance give you the breakdown on 529 plans.

What is a Qualified Tuition Plan?

As described by the U.S. Securities and Exchange Commission, a 529 College Savings Plan is “a tax-advantaged savings plan designed to encourage saving for future college costs.” These 529 plans are sponsored by various states, state agencies and educational institutions and are allowed under the code of the Internal Revenue Service. That means that when you got to a tax preparer or accountant, they will know how to take care of this plan on your tax return every year.

There are two types of these plans, those known as college savings plans and those known as prepaid tuition plans. These plans vary by state in their exact terms and ramifications in the tax code, so you’ll need to look into your state’s individual rules before you can fully understand the benefits for and impacts on your own situation. Not every state offers both kinds of plan, though all 50 states and the District of Columbia do offer at least one of them. In addition, a group of colleges and universities (all private institutions) also offer some form of this plan.

What Is the Difference Between a Prepaid Tuition Plan and a College Savings Plan?

There are two types of 529 College Savings Plans. Prepaid tuition plans have greater restrictions on the eventual college education of the student being saved for. Basically a prepaid tuition plan involves purchasing ahead of time college credits at participating universities or colleges, and can sometimes include buying room and board as well. These plans often have a residency requirement and are sponsored by the state in which the parents live at the time. Although many state governments do guarantee this investment, it may put restrictions on the student that end up being unwelcome in the long run.

Of greater flexibility is the college savings plan, which means that the account holder – usually a parent – can establish an account for the student to later use against the student’s eligible college expenses. The account is established in the eventual beneficiary’s name, and shifts to more stable investments to protect the income already put in as the student gets closer to college age. These plans often have contribution caps, though they are usually fairly high, more than $200,000.
For more information feel free to check out the Securities and Exchange Commission’s page entitled “An Introduction to 529 Plans,” which will help you understand not only the benefits of setting up such a plan for your child, but the differences between the two types as well.

The Pros

A 529 College Savings Plan offers a lot of pros when it comes to planning for a college education. One of the main benefits is the tax break that qualified 529 accounts receive. The money put into them is not taxed (unlike traditional savings accounts) and any growth that occurs on the account does so on a tax-free basis as well. Using a 529 account equates to specifically labeling the money inside of it as meant for college education, which means it escapes taxation altogether, allowing you to save more of your money for the future.

These plans, especially the prepaid tuition types, can offer major benefits for in-state residents. This means that no matter where you live in the United States you are guaranteed at least one, if not both, opportunities for saving 529 style. Before starting an account, however, make sure you are eligible in that state; if you have not yet completed your residency requirements that may complicate things.

It is also worth remembering that the government that sponsors them in the first place usually guarantees prepaid tuition plans, meaning that the money will stay safe no matter what happens to the economy or the individual investments in the plan. If you are lucky enough to have access to both types of 529 plans, keep in mind that the college savings plan has its own benefits as well, such as flexible spending.

The Cons

One of the main cons of the prepaid tuition plan is that it can sometimes be restrictive. Often students are limited to the states in which their parents lived when they started the 529 plan. This can mean limited choice when it comes to what school they may attend. Additionally, prepaid tuition plans can place restrictions on age or grade level of the beneficiary (student). Generally college savings plans have no such restriction, so that is something to think about when choosing.

Also bear in mind that these savings plans are specifically for college education. Any money removed for other purposes will be taxed at a normal rate.

Other Options

In addition to the two types of the 529 plan, there are other options for formally saving for college expenses. If you are planning to save for a student’s eventual trip to college, make sure you examine all of your options. The College Savings Plan Network can help you view what opportunities you have for establishing a savings plan now, or you can ask an accountant if you have one.

We here at PaydayLoansCashAdvance know that trying to figure out how to plan for your child’s college education can be tricky, but it is far from impossible. Understanding the possibilities now can mean time for planning and not having to wonder where the money is going to come from later.

The operator of this website is not a lender.
This site will share the form information provided by the consumer with one or more lenders.
This site can connect you with a cash advance lender based on your form and lender requirements.
Not all customers will be connected with a lender, and not all forms will be approved by a lender.
PaydayLoansCashAdvance cannot guarantee the amount of funds that may be extended if a lender approves the form.
*Not all lenders can provide up to $1,000. Consumer loan amounts vary bases on creditworthiness.
Lenders tend to provide upper range loan amounts to returning customers. Cash transfer time may vary between lenders.
Funds are not available until the next business day. Cash advances are not available in all states.
Lenders may undertake credit checks or otherwise verify the consumer’s social security number or other information.
If and when lenders preform credit checks they are ran via specialized credit bureaus.
Late payments of loans may result in additional fees or collection activities, or both.
Non-payment of credit could result in collection activities.
Each Lender has their own terms and conditions, please review their policies for further information.
Every Lender has its own renewal policy, which may differ from Lender to Lender. Please review your Lender's renewal policy.

Please refer to our Privacy Policy for important information on the use of cookies.
By continuing to use this website, you agree to the Notices and Disclosures and the Privacy Policy.

Copyright © 2014 All rights reserved.
3172 North Rainbow Boulevard #1212 Las Vegas NV 89108