Monday, December 22, 2014

The Tax Advantages of 529 Plans / Know the ins and outs of 529 plan tax benefits, which differ depending on your state.

Kate Stalter for US News World Report writes: Since 529 college savings plans were introduced in 1996, a growing number of parents and grandparents have taken advantage of the opportunity to salt away money for college and enjoy tax-free distributions.

As of mid-2014, the amount invested in 529 plans totaled $244 billion, according to the College Savings Plans Network, a consortium of state-plan operators. Compare that with the end of 1999, when investments in 529 plans totaled $5.75 billion. The group says a key factor in that growth is an increasing number of families participating in college savings programs.
A 529 plan allows an investor to contribute after-tax dollars earmarked for qualified higher-education expenses, including tuition and fees, books, room and board, and even computers and other supplies. Distributions for qualified higher-education expenses are free of federal income tax. On a state level, tax treatments differ. That’s one of the reasons 529 plan investors should understand available tax strategies, accountants and plan advisors say.
Tom Corley, a certified public accountant in Rahway, New Jersey, and author of “Rich Habits: The Daily Success Habits of Wealthy Individuals,” says making the decision to save regularly is the first step, even before you investigate potential tax benefits.
“You want to get into the habit of contributing to your child's college education plan right out of the gate,” he says. He notes that many plans allow participants to invest as little as $25 per month, as long as they are making regular contributions.
When opening a 529 plan, it’s crucial to understand what kind of tax benefit, if any, your home state offers. Most states, as well as the District of Columbia, offer residents some kind of income-tax deduction for contributions to their 529 plan. In the seven states with no income tax, there’s no possibility of such a deduction. In addition, several states that collect income taxes offer no deduction for residents’ 529 plan contributions. [snip].  The article continues @ US News World Report, click here to continue reading....


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