College Savings Plan of Alabama Helping Parents Save For College
 |  College Saving Plans - 529 Plan Options and Facts Just what 529 plan? A 529 plan is a state-operated investment plan that offers families a federal, tax-free method for saving money for college. Authorized by Congress in 1996, 529 plans are officially known as qualified tuition programs (QTPs). 529 plans are becoming one of the more popular options for families saving for any child's schooling. 529 savings plans are a great way to save lots of for college and so they offer great tax breaks. Though 529 plans differ from state to state, they are all exempt from federal taxes, and that can provide a real bottom-line boost in your college fund. Defined Benefit Plan 529 Plan Options 529 plans are available in two varieties: (1) college saving plans, and (2) prepaid tuition plans. Many states offer both options but every state has at least one present in options. College savings plans let parents use their plan funds for faculty expenses at any college. Prepaid tuition plans let parent's lock-in future tuition at in-state public colleges currently prices. Tax Deferred Plan 529 Plan Facts Earnings from the 529 plan are exempt from federal taxes, much like any withdrawals, as long as they go toward paying college costs. Some states waive state taxes for residents, other states allow deductions on contributions. 529 plans have generous maximum contribution limits -- some of up to $250,000 per beneficiary. Most states hire experienced investment companies, for example TIAA-CREF to handle their 529 accounts. If funds are withdrawn for purposes besides education, the gains are susceptible to a 10 percent penalty as well as federal income tax. States may assess their particular penalties. Great for grandparents: 529 contributions are thought completed gifts and are excluded out of your estate. Grandparents can also switch beneficiaries with other grandchildren. Note: Each 529 plan features its own algorithm and restrictions, which are at the mercy of change. Make sure to request the most recent plan details from plan administrators. |
