Paul Abbey

Preparing For A 529 College Savings Plan

Parents in the United States are encouraged to save for their child's future higher education expenses through section 529 plans, a tax-advantage investment vehicle.

If you have college bound kids, you should know of the 529 college savings plan, which is a very good way to save for your kids' educational future. This savings plan investment option available to any college or university in the country.

A lot of parents aren’t sure if the 529 college savings plan is the best option but a calculator should be able to help you determine that. You can compare your estimated income in a normal account with what you might earn with a 529 college savings plan. Accounting for how time you are allottedbefore the college years, you have the option to use the 529 college savings plan.

Weigh your options

Before you start to use a plan estimator, you may want  to keep in mind. The first thing is that a lot of calculators will Will only function with college savings plans. So consider a prepaid tuition plan only if you know for a fact that the person who benefits from the plan is definitely going to go to a school supporing the 529. 529 plans secure rates later and withdrawing from your prepaid plans are tax-free.

Withdrawls that are free of tax for those who qualify college expenses under a 529 plan are seen as gifts for tax purposes This is applicable for annual contributions not greater that the amount of 12k for individuals, but up to 24 k for married couples that are doing join contributions. Also, you can make a lump sum payment equal to five years worth which total 60,000 dollars for individuals or 120,000 dollars for married couples.

You should remember that you must prepare a separate 529 college savings plan for each child or grandchild but keep in mind limits would apply to each account separately.

Gains from investments that you get from your 529 is subject to the lower capital gains rate, if it is held for more than twelve months. The same rule applies for qualifying dividends. However, short-term gains as well as interest go for a regular rate.

How the tax savings calculator works

As a rule, most tax savings calculators will require the following information:  the years left until the child enters college, the rates for a college fund in the event that you invested in a taxable account as opposed to a 529 whether you will make a full payment or smaller payments and the amount of time you will contribute, and the average return expected.

Results will tell the value at college age, estimated after-tax value at college age as well as the amount you’ll have and the gain from the 529.

Utimately, estimates are only... - estimates so you will not know guess the amount until you start the investment process. However, educating yourself prior to selecting a plan  helps you to understand what to expect.

Article Tags: College Savings Plan, College Savings, Savings Plan

Source: Free Articles from ArticlesFactory.com

ABOUT THE AUTHOR