What better time than May 29 (5-29) to discuss 529 college savings plans? Whether you and your spouse are divorcing or not, saving for your children’s college education takes some financial planning.
f 529 college savings plans. If you are divorcing, make certain you and your soon-to-be ex are taking steps to assure the future education of your children. For information on how to structure your divorce settlement to maximize financial aid, read our blog post on the subject.
Did you know?
- Money saved in a 529 plan is available to pay for expenses at a “college or other accredited post-secondary school” that participate in federal financial aid programs
- A 529 plan and its assets are more favorably treated than savings in taxable accounts
- A student who receives a scholarship, can withdraw money from his or her 529 savings plan in the amount of the scholarship and not face a 10% penalty
Setting up 529 college savings plans for your children is a great way for a parent to get a tax advantage and an ideal way to save for a college education. A 529 college savings plan can be used for the education of your child, yourself, or anyone else; this plan is surprisingly flexible.
A 529 plan, established to pay for college, graduate or vocational school may allow you to take advantage of federal, and maybe even state, income tax benefits. The money you put into a 529 account grows tax-free and withdrawals for qualifying education expenses are also tax-free.
Here are the five biggest benefits of 529 college savings plans:
- This savings account provides favorable treatment when applying for federal financial aid. Assets in a 529 plan are owned by the parent, not the child. As a result, they do not negatively impact the child’s financial aid package the way savings accounts do.
- If the college student is awarded a scholarship, some or all of the 529 savings can be “repurposed.” The owner of the account is allowed to withdraw the amount of the scholarship from the 529 plan without incurring the 10% federal tax penalty.
- A 529 college savings plan can be used by the parent/owner of the account for his/her own education. Anyone 18-years-old or older, who has a valid Social Security number, can open a 529 account. An individual can also contribute to a 529 account for a non-relative.
- When you contribute to a 529 plan, you may see a significant tax advantage in your federal and state taxes.
- Contributing to a 529 plan is a great way for grandparents to reduce the size of their taxable estates.
When savings for your children’s education, a 529 plan might be the ideal vehicle to do just that.