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Beginner's Guide to Section 529 Savings Plans

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Overview of Section 529 Savings Plans

Overview:

Section 529 plans are considered one of the best options for saving for a child’s college education. They are called “Section 529” plans after the specific IRS code that permits their use.

There are two types of Section 529 plans: savings accounts and prepaid tuition plans. This article specifically reviews Section 529 savings accounts.

The Section 529 Savings account allows for after-tax contributions to be made on behalf of a designated beneficiary (not just a child). These contributions are allowed to grow tax-deferred, and potentially withdrawn tax-free for qualified educational expenses.

Ideal Investor:

A Section 529 savings plan is ideal for parents or grandparents who have some combination of the following factors:

  • They would like to save more than $2,000 per year.
  • They live in a state that offers a state income tax deduction for contributing to a Section 529 plan.
  • They make enough money to be disqualified from using a Coverdell ESA.
  • They have multiple children with the hope that all will attend college.
  • They are starting their college planning late in their children’s lives.
  • They are planning on saving large amounts towards college costs.
  • They expect their children to attend expensive graduate programs.
  • They want the freedom to reclaim the assets for any reason they choose.
  • They would like to fund a loved one’s college, while significantly reducing the size of their estate.

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