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529 College Savings
Plan
Typically operated by a state or educational institution, a 529 is an
education savings plan that permits families to set aside funds on a
voluntary basis to meet future costs at qualified colleges and
universities nationwide (tuition, fees, books, and supplies required
for study). Although contributions are not deductible on an
individual’s federal tax return, investments grow tax-deferred, and
distributions to pay for the beneficiary's college costs come out
federally tax-free. Effective July 1, 2011, voluntary employee
contributions to a 529 College Savings Plan can be deposited to an
employee’s 529 College Saving Plan(s) directly from their University
pay.
A 529 plan can provide a very easy hands-off way to save for college.
Plans work much like a 403(b), 401K or IRA by investing contributions
in mutual funds or similar investments. The plan will offer several
investment options from which to choose. The account will go up or down
in value based on the performance of the particular option that is
selected.
Once an individual decides which 529 plan to use, an enrollment form
must be completed. After the account is established, contributions may
be made to the account by direct payments or automatic deposits (for
example, through a direct debit from your bank account or direct
deposit from your pay). The ongoing investment of the account is
handled by the plan. Plan assets are managed either by the state
treasurer's office or by an outside investment company hired as the
program manager.
The 529 College Savings Plan offers other benefits in addition to the
tax advantages. Individuals have the ability to transfer any unutilized
savings to other qualified members of the beneficiary’s family. As long
as the transfer is to a qualified family member, there will be no tax
penalty imposed. Every state has at least one 529 plan available. Each
state decides whether it will offer a 529 plan and what it will look
like, so 529 plans can differ from state to state. Individuals should
research the features and benefits of any plan before investing.
Additional information on 529 plans is available at the resources
below.
Fidelity
Investments
TIAA-CREF
Saving for College.com
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