529 College Savings Plan

With the current economic recession and staggering unemployment rates, many people who are looking for work are opting to return to school to receive more education and training. Perhaps this is because job opportunities are scarce and they hope to increase their marketability. Or perhaps they want to break into a new job sector with hopes of earning more income. The statistics confirm this recent trend.

“The median college graduate earns considerably more than his or her peers who stopped their education with a high school diploma” (The New Frugality: How to Consume Less, Save More and Live Better p. 188). Chris Farrell recommends the 529 college savings plan as by far the best way to invest money targeted for college.

Benefits of the 529 College Savings Plan

All 50 states offer the 529 college savings plan. To set it up, you open an account in the future student’s name. Fund it with after-tax dollars and the money grows with both federal and state taxes deferred. When it is withdrawn, it is not subject to federal taxes as long as it is used for qualified educational expenses. Typically, it is free from state taxes as well. In fact, a majority of states permit a deduction of the amount you contributed to the savings plan from your state taxes.

There are a wide range of educational expenses that qualify to be used by the 529 savings. They include tuition, mandatory fees, books, school supplies, equipment, even a personal computer.You may use the money to pay tuition at any accredited public or private college in any state.

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A 529 savings plan can be started with less than $100. You can even set up automatic payroll deductions into the savings plan. If for some reason, the future student doesn’t need the money to attend college, the fund can be easily transferred to another child or even to your own further education. Anyone can contribute to the child’s fund. It is advisable to buy a 529 plan directly from the state because broker-dealers often mark them up.