Saving for college can be stressful and complex. With so little money to go around in many families with children, it can seem impossible to save enough money so that each child can attend college. The volatility of the stock market makes it difficult to rely on as a profitable investment vehicle over the long term. For this reason, 529 plans were developed that offer tax and investment advantages for college cost planning.
Contributions to 529 plans are exempt from withdrawal taxes when paying certain education-related expenses. So, when the time comes to withdraw the money, you won't be hit with a heavy tax penalty as you would if you were withdrawing the money from your 401(k) plan. In addition, 529 plan assets are counted as parental assets when it comes to securing student loans and other grants, so your student will not have a heavy asset burden and may be eligible for federal and state grants.
You may choose a 529 plan in almost any state that offers one, even if you are not a resident, so you can search for the plan that has the most tax benefits for you and your student. Most states allow 529 plan contributions to be deductible from state income taxes.
Thirty-four states and Washington, D.C., offer 529 plans. If your state doesn't, you can choose from reputable, privately held 529 plans run by major investment corporations. Whichever plan you choose, you should be able to find one that offers a variety of investing options depending on how old your child is, how much you expect to need for their college fund and how aggressively you plan to invest.
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