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Tag: "NJ college plans"

College Savings plans

[ 0 ] May 14, 2014

Spectrum Financial Solutions, FL, College 529 Plans

Saving for college has become easier than ever for many families since 529 plans were introduced. These plans allow anyone to open an account for a child and deposit funds into the account on a one-time basis, a monthly basis or an annual basis. Each state has its own 529 plan but in many cases, custodians of these funds may open an account in any state they choose.

Tax benefits of 529 plans

When saving for college, one consideration is the taxes paid on savings growth and at the time of withdrawal. In general, these college savings plans are free from federal taxes while they grow and, if the funds are used for higher-education, may be free from federal taxes upon withdrawal. In many states the same tax benefits are available on state tax reporting.

When a child decides against college

Perhaps one of the more unique features of a 529 savings plan is the options available should the child elect not to attend college. The custodian (the person who set up the account) has the option to change the beneficiary (the child) or to allow the funds to continue to grow in the account. Another available option, subject to taxes, is to withdraw the funds into another account. Because the new account would not be considered a qualified account, earnings on the growth portion of the funds would be subject to taxes and a penalty of up to 10 percent is also payable to the federal government. Before making this type of change it is important to speak with a tax advisor.

Saving for college is never easy although 529 plans make it easier than ever. One single child may have multiple accounts set up for them by different people. Before you decide which college savings plans are right for your needs, it is a good idea to speak with a financial advisor who can help you determine what benefits are available to you based on your individual financial needs.

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