Section 529 Plans

529 plans are basically educational plans which have been named after section 529 in the Internal Revenue Code. They are college savings plans that enable parents to save for their wards' future college expenses.

529 college savings plans are primarily of two types-prepaid tuition plans and a more all-purpose savings plan. While the former applies mostly to education within the state and also gives greater benefits if the recipient attends a suggested institution (that too within the state boundary), the latter is more flexible and can operate effectively even if the beneficiary attends any accredited institution outside the state.

Within the wide-ranging 529 plans each has its distinctive feature. For example, account funds grow without the pressure of taxes bothering them. Contribution limits are generally quite high, though different states fix their upper limits individually. Generally no state sets income limits where investment is concerned. It is also true that contributors can range from parents to grand-parents

Across the different states varying plans are offered and often state residency isn't an issue, that is, residents living outside a particular state can easily apply for in-state plans if benefits are to the investor's liking. But in various plans the rewards are better for residents of that particular state. For example, someone living outside the state might have to pay a greater management fee than someone from within.

A distinctive feature that makes 529 plans a hot favourite with many people is that the donor remains in absolute control over his assets so much so that even the beneficiary cannot access the account and in some cases a particular state might give the contributor the ability to annul the account and go for a withdrawal, though such withdrawals are often subject to taxes and penalties. Wherever the withdrawals are carried out to pay for expenses taxes are not applicable but if the case is otherwise then both state and federal income taxes are levied on any earnings.

529 plans affect every family interested not in the same way. For example, if the family's earnings are just enough to disqualify them for any financial aid then 529 plans can come to the rescue.

Whatever the plan of action is of any investor, deciding to open any 529 plan requires a preliminary research that should include the scope of investment, contribution limits, advantages that can be had from a specific plan, the fee to be charged by the account custodian so on and so forth. Choosing a 529 plan can be difficult where an investor has to pay heed to innumerous sales pitches. Therefore, if properly judged and researched a 529 plan might be the option to take a step towards investment!

529 Plans