canstockphoto6041672Investing in your children’s education is certainly one of the best gifts that you can give. The costs of higher education is getting more expensive every year. With in-state expenses at a public school averaging  just below $20,000 annually, you may be wondering how are you going to pay for it.

 

529 College Savings Plan is one of the best solutions that will ease the financial challenge of paying for your children’s college education. It is a state sponsored savings plan that allow tax-free earnings. Contributions are not deductible for federal income tax, however it is tax deductible in many instances for state tax purposes.

 

Here are some advantages of opening a 529 College Savings Plan:

 

Tax Writes Offs Can Potentially Be Huge

The account holders can write off a maximum of $55,000 from their estate per beneficiary without having to pay a federal gift tax. The limit is $110,000 for married couples.

For example, a wealthy couple with 4 grandchildren could deposit $440,000 ($1000,000 x 4) towards their grandchildren’s college education and reduce that amount from their estate. They are able to do it every five years until the maximum amount is reached.

 

You Will Have Control of The Assets

If you decide to close the account, you may be required to pay a 10% penalty and the income tax on any earnings. The balance is yours to keep and do as you wish.

 

The Beneficiary Can Be Changed

If one of your children decide not to go to college, the account can be reassigned to the next sibling. The account must be transferred to an eligible family member.

 

Can Open An Account In Another State

Each state have different plans, and some are better than others. You are able to invest in plans in nearly every state.

For example, you can be a resident in the state of Arizona and invest in a 529 plan in Connecticut and send your child to school in the state of Florida. There is a lot of flexibility available. Be sure to shop around before you open an account.

 

The fees that’s associated with various plans are also important for you to consider since some will be much higher than others. Many financial experts consider the extra charges to be the most important criteria while choosing a plan. Some fees are incurred when opening an account and there are also annual maintenance fees.

 

If you know for sure where you would like to send your kid to school, there are many universities that offer prepaid 529 plans. This will allow you to pay the cost at the current rate. Unfortunately, there are penalties if your child decides later on to go elsewhere. If you choose this option, make sure where you will be sending your child to college.

A drawback to this method is that investment options are slightly narrow, and the ability to switch between the available investment options is also limited. The tax code currently restrict changes to occur once a year.

 

Like any investment, a 529 plan isn’t for everyone. There are various options to finance a college education. Each have their benefits and limitations.

 

After you have done your research on investment options, you may find that a 529 College Savings Plan is an excellent option that will ease the burden of paying your children’s college education. With the cost of college education on the rise, your kids will thank you later for investing in their future.

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