Should I Invest in a 529 College Plan For My Kids?

529 college plan

For many this is a no brainer, but you should still consider the pluses and minuses before you start investing in your child’s future. If you are wondering what the heck a  529   College   plan  is, read further for the answers. A  529   College   plan  is a tax deferred  savings   plan  for your kids education. These are very similar to a 401(k)  savings   plan  often used for retirement. In this article we will be covering the benefits of the  529   college   plan , how the  plans  work, and some pluses and minuses to consider.

The  529   college   plan  is a great way to start investing now in your child’s future. The  529   plans  are typically sponsored by each state and helps you save tax free. Not only is it beneficial due to the tax benefits but most  plans  let you purchase your credits in advance in today’s dollars. These credits will be honored when your child enters  college . The  savings  can be large due to the fact that inflation is not a factor in your prepaid tuition. What a deal!

One of the other main benefits of the  529   plans  are that you can get into the habit of investing on a regular basis. Some of these  plans  do let you withdraw your money with no penalty ,and others charge you 10% for early withdrawal. If you start early when your children are in elementary school you will reap the most benefit from both inflation and tax deferment.

 529   College   savings   plans  are typically ran by each state. There are also independent funds that you can invest in just like a normal investing account. Typically, there is an enrollment period each year when you can apply and setup your account. From that point forward you can buy credits and invest in the fund whenever you would like. The cost is typically adjusted each year due to inflation. Anyone can donate money to a  529   college   plan .

Each parent can contribute a maximum of $11000 a year per child. The limit is $22,000 for married couples investing jointly. If other family members are investing as well the maximum limit is $55,000. The largest plus for  529   college  funds are the tax free investment you can make into your child’s future. The second advantage is that the  plan  is typically in the parents name and acts as an asset for the parent as does any investment account. One of the minuses is that congress has only permitted federal exclusions through 2010. If this time period is not extended it may not be beneficial for kids  planning  on attending  college  after 2010. It is very likely this exclusion will be extended as there is over $200+ billion invested currently in  529   college   plans . In addition, those funds that you invest today will still benefit from both pre-tax and inflation  savings  in the future.

The  529   college   plans  are a great investment vehicle for your child’s future. Make sure you read the fine print on each  plan  you consider and get enrolled today. If you make a habit of investing every month, before you know it your child’s college tuition will be covered.

Source by Matt Murren

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