A 529 is a state sponsored program created by the government also referred to as a qualified tuition plan. This program is a federally tax free program that offers many tax benefits and allows tax free withdrawals for college expenses. The program allows to you make after tax contributions, the money you contribute earns tax free interest. The withdrawals should be used for college expenses only like tuition and fees, books and room and board costs. Read on to learn about the Pros and Cons of 529 plans…
THE PROS AND CONS OF 529 PLANS…
PROS
Anyone can contribute to these plans
There are no income limits or restrictions
No age limits or restrictions
You can make small or large contributions
Since these are state sponsored plans there may be a state income tax deduction available
Simple hassle free investments offered (age based investments)
You can change the beneficiary (future student) on the account
Tax free growth and withdrawals for college expenses
Low impact on financial aid eligibility
CONS
Investment Risk-These accounts are not FDIC insured or guaranteed, so there is a possibility to lose some of your earnings and initial contributions.
Potentially high expenses/fees
If you don’t use the money for qualified college expenses you pay a 10% penalty tax to the Federal Government as well as ordinary income taxes (federal and most times state taxes)
You can read more about these and other programs at http://longgreenforkids.ning.com
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