Using a 529 Plan For Paying Student Fees
A 529 plan is a great option for everyone who is trying to save money for education. According to the latest news, over the last 20 years, the cost of education in the US has risen a whopping 168 percent. Therefore, now more than ever it is important to plan out finances carefully. 529 savings plans are state-sponsored. It allows the usage of after-tax contributions to grow earnings on a tax-deferred basis. One can withdraw funds from a 529 account for expenses related to education. Such as tuition fees, textbooks, and so on without paying taxes. Here we are going to discuss how you can use a 529 savings plan to pay student fees effectively.
Investing Aggressively From The Beginning
If you have planned to use a 529 savings plan to pay your education expenses, then time is your biggest ally. You have to learn to use it wisely. Time gives you the biggest and most powerful advantage of compounding. It enables the saved up money to earn more money. Therefore, you must start saving very aggressively from very early on.
Also, the earlier you set up your 529, the more risk you will be able to take in terms of maximizing growth completely tax-free. The extra time will allow investors to take more chances with stocks. That will then give you higher returns in the long term. However, for the short term, the return is most likely to be volatile.
Involve Your Extended Family As Much As You Can
It is no surprise that the primary burden of paying for college education always falls on the student or the parents. However, the 529 plan can also let your extended family get involved. Your relatives or extended family can contribute to a 529 plan or even better they can open one for you. This is a great opportunity that you must take advantage of. Also, it should be pointed out that your extended family will be eligible to take a tax deduction for the contribution to this 529 plan. This is another amazing bonus point.
Keep Track Of All The Rules Closely
You always have to keep in mind that a 529 savings plan allows the withdrawal of money only for ‘qualified’ expenses without any tax or penalty. The emphasis over here is on the word ‘qualified’. If you end up withdrawing any more than what you are supposed to for the year. Then it is very much possible that you have to pay taxes or a penalty on that amount. So, it is very crucial for you to not withdraw more from your 529 savings plan than the actual expenses you had to incur in a given year.
Directly Pay For The School
The best way you can utilize the 529 savings fund is by paying the cost of the college education fee all at once. This will ensure that you do not end up withdrawing more money than what you were supposed to and then cause a tax liability.
This brings us to the end of our discussion on using a 529 savings plan to pay student fees effectively. Now let us know did you ever use a 529 savings plan for college?