Saving for college is tough for every family, but 529 plans can help people save more with added tax benefits.
“For parents or grandparents looking for a way to put aside money for a child’s college education, the tax advantages of 529 plans can be a great way to leverage their savings,” says Eleanor Blayney, consumer advocate for the Certified Financial Planner Board.
You can contribute to a 529 plan through your employer with automatic payroll deductions. It’s rare, but some employers may even match your contributions.
“It’s a very easy way to make sure you’re contributing on a regular basis to your 529 plan,” says Joseph Hurley, the founder of Savingforcollege.com.
Here are some tips for saving with a 529 plan:
Q: What is a 529 plan?
A: A 529 plan is a college savings plan run by a state or educational institution. The money you put in a 529 won’t be taxed when it’s used to pay for approved educational expenses, such as tuition, room and board. It’s “a way for parents and grandparents to save for their children’s colleges in a tax-advantaged way,” Blayney says.
Q: What benefits do I get with a 529 plan?
A: The money you save in a 529 plan won’t be taxed as long as it’s used to pay for college expenses. You’ll be left with more money for college than you would have in a taxable account, and you’ll have extra motivation to make sure that money is used for college, since taking it out for any other reason will subject it to taxes, Blayney says.
Source: USA Today | Emma Hinchliffe