Elk Grove, CA Accountant for 529 College Funds
Our licensed Elk Grove accountants can help you navigate the 529 college savings fund and other education investments. Call today for more information.
Now, perhaps more than ever, the importance of saving for college is paramount for families with children. It’s wise for families to start saving as early in their child’s life as possible and to keep that money in a safe and easily managed place. While there are many options for investment, a 529 college fund may be the best choice for many families.
You don’t have to choose alone, however. A licensed accountant that works with Cook CPA Group can help you choose — and then manage — a fund that you can use to save money for the education of a child in your family.
Advantages and Disadvantages of the 529 College Fund
529 college funds are tax-free funds intended solely to help save money for a person’s education. Its name comes from the part of the tax code that is responsible for creating qualified tuition programs for tax-exempt education expenses, Section 529.
There are many advantages and disadvantages of 529 college funds that families should note before investing their money into them. The most notable advantage of 529 college funds is the fact that they are tax-free — the account itself is exempt from taxation and will not be taxed when it is eventually used for the purpose of paying for education costs. However, a penalty of 10% will be applied if an account owner withdraws the funds for a purpose that is not education-related.
The accessibility of 529 college savings funds is another reason that families with college-bound children choose it as a way to save money for college. Anyone over the age of 18 is able to open a 529 college savings fund. Income is not a factor in eligibility to open one of these funds. The money in 529 college savings funds can be used to pay for both public and private educations in the United States and even some that are located outside of the United States. And while they are usually intended for use with college educations, they are also able to be used for K-12 school tuition.
Another advantage of investing money into a 529 college savings fund is the flexibility that account owners have. Owners are able to change the beneficiary of an account to another member of their immediate family whenever they like; they can also alter their investment options twice in one calendar year and can roll over funds into a different plan if they choose.
Those saving for a college education should be aware of the disadvantages of keeping a 529 college savings fund, however. It is possible for 529 college savings funds to decrease a student’s ability to qualify for financial aid. However, this only happens if the fund is maintained by a parent and can be avoided if the account is owned by a grandparent or other relative. Another slight drawback of a 529 college savings fund is that taxation will be placed on extra money left over after the tuition has been paid. Extra funds may be transferred to tuition for graduate school or the account of a family member, though.
There are also limits on how much can be invested into a 529 college savings fund per year, and the limits vary by state. These limits can range from $235,000 to $520,000 per year per child.
The Two Types of 529 College Savings Funds
529 college savings funds can be invested as either a prepaid tuition plan or an education investment fund. The prepaid tuition plan is an unpopular option since the account owner buys units of education by the credit to be used in the future by the child. It provides a way to beat the cost of inflation, but it does not cover the cost of books and other expenses tied to higher education.
The education investment fund is a more popular option because it can be used for not only tuition, but a variety of costs related to education. This includes room and board, most importantly, but also books, computers, Internet access, and computer software. In certain cases, 529 college savings funds can also cover the cost of special needs equipment for students that require it.
Still, there are some major expenses related to education that are not covered by 529 college savings funds, including the cost of health insurance and transportation. Furthermore, 529 college savings funds cannot be used to pay for student loans.
Accountants in Elk Grove, CA Are Available to Help with 529 College Funds
It’s never too early or late to begin saving for the college of the child or children in your life. Using a 529 college fund is likely the best option for you and your family to save money for the purpose of not only a college education, but also a K-12 education. A licensed CPA with Cook CPA Group in Elk Grove can help you manage the funds in your 529 college fund so that you can be as prepared as possible for the future.