How to Set Up a College Savings Account

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Trying to set up a college fund? Get tips for beginning a college financial planning fund in this free video clip.

Part of the Video Series: Financial Planning for Beginners
Promoted By Zergnet

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Video Transcript

Hi, there and welcome to another segment of understanding financial tips so you can do it yourself. Do you know that college tuition is increasing at a rate of 6% per year? You compare that with the inflation rate of 3%, how are you ever going to afford to send your kids to school? Well, don't worry, there 's a great plan out that you should definitely take advantage of. It's called the five-two-nine account or the college savings plan. Now, people might say what's a five-two-nine? A five-two-nine is actually a code section of the internal revenue service that talks about college savings plans and tuition programs. They're state by state regulated but it's really come a long way in the past year, the past few years actually. The five-twenty-nine really gained it's momentum with the tax payer reconciliation act of 2001 and here are some of the benefits. Now, most parents are concerned, I'll put money aside in a custodial account or a UTMA and when my kids turns eighteen that money is legally theirs. Well, they're absolutely right, so if your kid wants to buy a Ferrari he c an legally or she can legally take that money out and do that. So, how do you protect yourself? The five-two-nine allows you to do that, the money is controlled by you until you decide who the money goes to. You can name a beneficiary even for a child who's not even born yet, so you can start planning before you even have children. Another thing that advantageous is you can change beneficiaries, so if you have one child who decides not to go to school you can easily move that money to the other child. But, it's a great incentive for them to pursue higher education. One of the biggest benefits is being able to benefit from tax free withdrawal. You can pull this money out when your child is ready to go to school and the money comes out tax free so you get tax deferred growth and tax free withdrawal. What could be better than that? Realistically, when you compare all the different types of savings plans doing a five-two-nine is a no brainer. Everyone should have one if they have kids and they're planning to send them to school.

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