The Lowdown On Prepaid vs Savings 529 College Savings Account

As costs keep mounting out of control trying to decide which plan to save for college is becoming harder and harder for every parent. Two savings plans have popped up recently that may help take the sting out of the high cost of college education for future students. The prepaid plan vs the 529 college savings plan. Which will work best for you is dependent on many different factors that we will look over.

Some things in common with both plans is you need to start young and that can't really be enforced enough with any kind of savings plan for college. The prepaid plan is where you buy tuition credits at today's rates and use them when your child is ready for school. This helps defray the costs for you. The biggest drawback in this program is you really don't know how many credits you are going to need.

This is dependent on what your child's major could be and also which college they decide to go to. Now you may also have to factor in that not every college will participate into the program. These are all things to consider before going with the prepaid route.

The 529 college savings plan is where you put into an account and let it grow over time. This is tax free and you can start this when they are real young and have a nice little sum waiting for the college student when they are ready. The biggest drawback with this play is the fees they charge for this. These fees are starting to get lower, but vary from state to state.

As Congress has stepped in and helped watch these programs they are getting better and are becoming more user friendly than ever before. At one time many of these prepaid and college savings plans were changing about every six months, which made picking a plan for your child almost impossible. So, which plan is best for your child? This will depend on many factors.

Costs are always going up and that will never change. Probably one of the first things to look is a two year or four year college. If the two-year college is in your child's future than probably the prepaid system may work best for you. Now if the four-year college is more to their liking than maybe the investment would work out a lot better.

Each case is different and it will take time and research to determine which is best. The other factors will include where you can get the best deal and how much you have to pay out is always something to consider. Different states have different plans and watch out for brokers who will try to sell you higher policies in other states. Do a little research and you could save a lot of money in the long run.

Don't be afraid to ask questions and get the answers you need. It's your money you’re spending and your child's education is one of the investments that will last a lifetime. Nothing is wrong with getting the best for your money. Prepaid or savings account is something you will need to decide and which one fits best into your budget.

Both plans are good, but have drawbacks that you will need to consider. No matter which one you choose though the money you save will be worth it as your child or grandchild will reap many benefits from your wise decision early in their life. Education is knowledge and as they know more they will earn more just a fact of life.

Keeping Track of your 529 College Plan Contributions

There are several reasons that it’s important to keep track of your 529 college plan contributions. When investing in a pre-paid 529 college plan account overpayment means money that parents won’t be able to withdraw or to use if the student doesn’t need it or ends up not going to college.

When investing in a non pre-paid 529 college savings account it’s important to keep track of your investment contributions because that money may be subject to an income tax deduction in the state you live in.

This is important for any family member who is contributing to the child’s 529 college savings fund, and anyone in the family can contribute money to the college savings fund although the contribution may not be tax deductible in all states.

Keeping track of your contributions to a child’s 529 college savings account is also important so that you can keep track of how much money has been invested, if the investment is growing fast enough and what the rate of growth is. After all, that account is very important to the family because the child’s future education depends on it.

The money that parents or other family members contribute to a 529 college savings account is considered to be a gift and as a gift that money qualifies in the tax code as part of the annual $11,000 gift tax exclusion. So, any family member can contribute up to $11,000 annually without any taxes being applied to that money.

According to the current Federal gift tax law, parents and family members can give up to five years' worth of financial gifts, so a total of $55,000, in one year with no tax penalties, however that person would not be able to contribute any money to the account for four years following that year.

Making a large contribution makes a lot of sense whenever a parent or family member can afford it because the interest on such a large payment would accrue faster and in greater amounts than interest on smaller payments, even if there were lots of smaller payments made during the year.

If you have a personal banker or investment professional who takes care of the household’s investments make sure that the investment professional gives you a detailed accounting of all the contributions made to the non pre-paid 529 college savings account every quarter or every month and keeps you advised of important matters pertaining to the account.

The best way to make sure the investment is doing well is to monitor it yourself, but many people find investing confusing and prefer to leave their investments to be managed by a professional.

When tax time comes around, be sure to document all your contributions to the child’s 529 college savings program if your state allows tax deductions on that money to make sure that those deductions are applied to your taxes.

Keeping track of your 529 college plan contributions also means staying on top of the latest developments in the laws regarding 529 college savings plans. Make sure to stay on top of any changes in the laws regarding 529 college plans to make sure that you don’t end up losing money.

While a non pre-paid 529 college savings plan has a relatively moderate risk level, there is still some risk and it’s best to monitor the contributions and management of the 529 college savings plan closely to make sure that the investment is still performing well and growing under the asset company’s management.

Be sure to address any questions about the contributions to or the performance of the 529 college savings account to the asset management company chosen by the state to administer the account rather than to the state itself because the state is not involved in the direct management of the 529 college savings fund.

Learning about State Tax Deductions with 529 Plans

When planning ahead and investing in a college savings plan to make sure that money is available for a child’s college education it’s important to learn everything possible about the many different types of college savings plans and the different rules regarding taxation of those savings plans.

For parents, this information can be confusing but it’s very important to make sure that the investment is set up correctly and the best type of investment is chosen to make sure that the money the parents have to invest makes as much money as possible for the child’s education

Most parents end up investing in 529 college savings plans but the laws surrounding 529 college savings plans are complicated and can be different in each state since the 529 college savings programs are state run.

Learning about the state tax deductions allowed for 529 college savings plans is very important. The laws regarding taxes, tax deductions, and 529 college savings plan are different in every state, so parents should look for information regarding taxes and 529 college savings plans in the state where they live before investing.

Parents who invest in a 529 college savings plan that is not a pre-paid college savings plan are not eligible for a Federal tax deduction on the amount of that investment however investing in a 529 college savings plan does have some benefits because money invested in a 529 college savings plan is tax free, and deductions made from the 529 college savings account that are applied to educational costs are also tax free.

Some states offer parents a state income tax deduction on money that it is contributed to a 529 college savings account. Each state is different, but it’s easy to find information about 529 college savings plans and tax laws that are listed by state so that residents of each state can find out what the laws are where they live and what tax deductions, if any, they are entitled to when opening a non pre-paid 529 college savings account for their child.

In terms of taxes, the thing to watch out for when investing in a 529 college savings plan that is not a pre-paid 529 college savings plan is the penalties and tax fees for early withdrawal of that the investment money.

If parents withdraw the money from a non pre-paid 529 college savings plan account for any reason other than applying that money to specified higher education expenses there is a significant early withdrawal fee and tax penalty.

When the investment is withdrawn early and not used for educational purposes, the amount of money that withdrawn from the earnings portion of the 529 college savings account will become subject to state income tax plus an additional 10% tax on that portion of the investment.

There are a lot of rules and complicated issues when it comes to non pre-paid 529 college savings accounts and parents should make sure that they understand all the rules and the tax laws regarding 529 college savings accounts before they invest in a 529 college savings account to make sure that in the future they are not left in a situation where they didn’t put away enough money for their child’s education or end up paying heavy tax penalties and fees and end up without enough money to pay for their child’s education because they didn’t understand the tax laws regarding 529 college savings accounts when they first opened the account.

It’s more important than ever these days to put aside some money for a child’s education because college costs are skyrocketing every year. Be sure to invest wisely to make sure that the investment provides enough money for the child’s future college education.