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Home > Financial Info > Something About “529” Plans
Something About “529” Plans
Have you ever heard about the “529” Plans? Well, here, there is a general overview of this kind of plans.
“529” Plans are state-operated investment programs to save money for college. This has become one of the most popular options for many parents in the United States. However, the plans are different in each state, and all of them are absolved from federal income tax. In this way, you can increase your college funds. Congress approved them in 1996. Officially, they are known as QTPs (Qualified Tuition Programs). Commonly, North Americans referred to them as “529 Plans”.
There are two types of "529" Plans: College Saving Plans and Prepaid Tuition Plans. Some states offer both alternatives. The first one allows family to use its saving plan to cover college costs at any school. The second category lets parents protect future schooling charges at in-state-public colleges at the current prices.
With these savings plans, earnings and egress are federal tax free; however, some states do not demand state taxes for residents. On the other hand, some states allow deductions on funds. Besides, there are very high fund limits. There are plans of around $250,000 per person. People can be confident about their funds’ management. This is why some states work with prestigious companies to administer their saving plan accounts.
In contrast, if the funds are used for other purposes but covering the education costs, the student is exposed to pay a 10 percent penalty and the federal income tax. Nevertheless, some states can determine their own penalties.
It is recommendable to investigate a little more. It is always important to have the advice of a financial adviser or tax expert. Decisions that are associated with taxes or federal connotations are very important. Be sure you know and understand all the charges and penalties. Each saving program has its own rules.
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