The federal government identified this huge problem faced by
millions of parents throughout the U.S. and authorized the creation of a
program designed to help with the burden of paying for college by helping
parents get a head start. 529 tuitions savings plans was a result of the
government's effort by creating such a college fund.
The plans are named after section 529 of the Internal
Revenue Code and they are designed to help parents begin saving for college by
providing investment options that allow them to withdraw funds for qualified
educational expenses, tax free. Each state has its own incentives so it is
important to know your own.
State sponsored 529 plans can be a great option for parents,
but they are not flawless. Every 529 plan is different and some are in fact
better than others. The federal government has outlined the fundamental
qualities of the plans, but you are left to determine by individual states and
the sponsor of each plan, which is best for you.
One large disadvantage to the 529 program (which is why
parents also begin the program in the first place) is that the funds allocated
into the 529 tuition savings account are set aside for the sole purpose of
paying for qualified higher education expenses. This is a great benefit for
those parents who have children that have been raised and now have the same
desire of their parents.
However, for those parents who now have children that have
made their minds up to take a different direction in life, the benefits of the
529 savings are wiped out by tax penalties when the funds are not used for
educational expenses. There is little way to get around this issue. You must
weigh your options carefully.
When you are considering a 529 plan, beware of fees also.
You must remember there are underlying fund expenses, state fees, program
manager and or sponsor fees, annual distribution fees, account maintenance
costs, annual asset based fees that are associated with all of the 529
accounts. Fees, like benefits and incentives vary state by state.
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Article Source: DesireToRetire.com
