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 These contributions are allowed to grow tax-deferred, and potentially withdrawn tax-free for qualified educational expenses.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.