Families with college-bound children have many options when it comes to saving for the cost of tuition and other expenses. For many families, a 529 college savings fund may be the best option since it allows families to save money for college in a way that is simple, accessible, and tax-free. These funds can be applied to not only college tuition but also to K-12 education, as well as to education-related costs such as books, computers, and room and board.
Choosing and managing a 529 college fund can be done with the help of a certified public accountant from Cook CPA Group. If you’re interested in learning more about how you can begin saving money for your child’s education with a 529 college fund.
Why a 529 College Fund May Be Beneficial For Your Family
A 529 college fund is a savings fund that is intended solely for the cost of intuition or costs related to education. It is known as the 529 college fund because it is named after Section 529 of the Internal Revenue Code.
Many families choose to save for their children’s’ education with a 529 college savings fund because it is tax-free. A 529 college fund itself is not taxed and will not be taxed when the money is taken out of the account to be used for education. However, if an account owner must withdraw funds for a purpose that is not related to education, income tax and a 10% penalty tax will be applied.
Another reason that families often choose 529 college savings funds is that they are simple to manage and easy to access. All persons above the age of 18 are able to open a 529 college savings fund regardless of how much money they make. Furthermore, the money saved in a 529 college savings fund can be used to pay for the cost of tuition at most educational institutions in the U.S., both public and private. They can even be used at many schools outside of the United States. They are usually used to pay for college tuition, but they can also be used for tuition for K-12 schooling.
Owners of 529 college savings accounts have flexible options when it comes to managing their accounts. Owners are able to change the beneficiary of accounts as long as it is a family member. They may also change investment options twice in one calendar year and may rollover funds into different 529 college savings plans within one 12-month year.
Downsides of a 529 College Savings Plan
Those looking into 529 college plans should note potential drawbacks involved in investing their money. Since 529 college savings funds may be listed as an asset on FAFSA applications, it is possible that investing in a 529 college savings fund may make a student less qualified to receive financial aid. (One way to circumvent this is for a 529 college savings fund to be managed by a grandparent or relative who is not the student’s parents.)
People who are interested in opening and maintaining a 529 college savings fund should also note that any money left in the account after an education has been paid for will be taxed. 529 college savings funds also have limits on how much can be invested in a certain year, and they vary by state — these restrictions range from $235,000 to $525,000. Some 529 college savings plans also have minimum initial contributions and minimum subsequent contributions, usually around $25.
Types of 529 College Savings Plans
Those investing in 529 college savings plans have two options for investment. The first is a prepaid tuition plan. This allows the account owner to buy units of tuition by the credit that can be used later in their child’s life. This is not frequently chosen by families because, although it is a good way to beat the cost of inflation, it does not cover the cost of room and board, books, computers, and other education-related costs.
The second type of 529 college savings fund is the education investment fund, which is more frequently chosen. Money invested in education investment funds can be used for any cost related to education, whether it be for college or K-12 education.
Expenses Covered by 529 College Savings Funds
529 college funds are a good choice for families investing in their child’s education because they can cover the cost of tuition. However, they also cover many education-related expenses. The main education-related cost that 529 college savings funds covers is room and board. They also cover related expenses, including computers, software, internet access, and books.
These funds may also cover special needs in certain situations. Unfortunately, other necessary costs including health insurance and transportation may not be paid for using the funds from a 529 college savings fund. Student loans may not be paid using 529 college savings funds, either.
Folsom, CA, Accountants Available to Help with 529 College Savings Funds
Make sure that the college-bound person you care about has the proper funding to set them on the right path. Consider investing in a 529 college savings fund with the help of a certified accountant at Cook CPA Group.
