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Tag: "NJ saving for college"

Prepaid College Savings Plans

[ 0 ] June 4, 2014

Spectrum Financial Solutions, FL, College savingsSaving for college is always challenging and determining how much money to save can be even more of a challenge. One of the unique plans that parents can choose are special 529 plans that allow them to lock in today’s college costs for the future. While these plans offer many benefits, there are some features of these plans that parents should be aware of including:

  • Room and board costs – generally speaking, many of these prepaid plans do not calculate room and board into their tuition lock-in plans. Parents may have to set up separate 529 plans in order to ensure the student has sufficient funds for room and board.
  • Contracts matter greatly – parents who decide a prepaid plan is a good idea should carefully review the contract to ensure they are well-versed on exactly what is offered. There are many schools that offer prepaid plans but not every plan covers the same expenses. Before you sign a contract, make sure you have thoroughly reviewed it with your financial advisor to determine if you need to save additional funds.
  • When students get scholarships – oftentimes students are awarded full academic or athletic scholarships and parents are tempted to close their prepaid plan out for other expenses. However, it is important to review the terms of these scholarships since they may not apply if the student is unable to continue playing sports or suffers a drop in grades. Keeping the prepaid plan in place until the student graduates college is typically a good idea.
  • Ask about tax savings/benefits – before you decide on a prepaid college savings plan make sure you talk to your tax advisor about the tax benefits and savings available to you. In most cases, deposits to the account are tax deductible on a state and federal level and since the funds can only be used for education purposes, growth is typically tax free as well.

There are a number of options parents may use when saving for college including prepaid tuition plans. Since these are still 529 plans, it is important to thoroughly review the plan before you decide it is the right option for your family.

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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.

Content provided by Transformer Marketing.

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