Introduction to 529 Plans


If you are planning to have some savings for your child’s future education, then 529 plans are the best for you. Basically 529 plans are college savings plans that are taken for meeting the expenses of higher education in the US. But investors use these plans for meeting other tax related advantages too.

Whatever be the reasons for taking any 529 plan, they are considered one of the best tax savings plans in any US state. Each state has its own 529 plan with slightly different features. In this article hence I will explain more about this plan and its common features:

Plan 529 is a growth based college savings plan to meet the expenses of higher education in the USA. Based on the features of each state related 529 plan, an investor may enjoy certain tax deductions as per State laws.

As mentioned earlier 529 plans are mostly taken by parents or guardians (or other relatives) for meeting the education expenses of their child or ward. Till the end of the plan tenure the donor (for example the parent) has control over it and not the beneficiary.

If therefore the parent wants a tax free growth of the 529 plan, it has to be made sure to follow all IRS guidelines till the end. A good feature of this plan is that the donor during the course of the plan time has the option to change the beneficiary of the plan.

For example if during the course of your 529 plan you find that your eldest child doesn’t need your savings for his/her education due to some scholarship on offer, you can make your younger child the new beneficiary. In some state based 529 plans such change might affect the tax process.

To enjoy tax benefits 529 plans give you the option to pay a higher contribution amount (approximately close to $12000) when compared to other tax savings plan. Each state has its own contribution limit, so you need to be aware of that.

Another feature of the plan is that any person can take this plan for a beneficiary, such as the parents, grandparents, relatives or even friends. This means a lot many people can enjoy tax benefits using the 529 plans.

More over all the earnings from the 529 plans for a donor are tax free, so is the case at the time of plan distribution too. So invest in any of the 529 plans if your objectives are to save money, save taxes as well plan for your child’s future.


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