Though the 529 plan sounds complicated it is in reality very simple to use. Just fill out some forms, designate an owner and a beneficiary, and set up automatic withdrawals from your checking account.
Below are a few interesting tips concerning 529 Plans:
1. Uncle Sam has made a great way to help you save for college. The 529 College Savings Plan named after Section 529 of the Internal Revenue Service gives college savers a special savings programs allowing funding for qualified higher education expenses without paying taxes on earnings or interest on those savings. According to the IRS, qualified higher education expenses generally include tuition, fees and related books, supplies and equipment, as well as limited amounts for room and board.
2. Don't take out to much from your 529 Plan account. To be completely tax free, withdrawals must be used to pay qualified expenses during the current tax year―or calendar year―not the current school year. If you need $30,000 to pay tuition from September through May of this year, take only what you need to cover costs through December, when the tax year ends. In January, the remainder of the money can be withdrawn for the academic year.
3. Don't take out to little from your 529 Plan account. What if there is money left over in a 529 plan after graduation? Unfortunately, you may end up paying taxes on your investment earnings if they aren't used for qualified higher education expenses. All is not lost, however, since money can be used to fund a child's graduate education. Also, the account beneficiary can be changed to another family member if a different relative has qualified higher education expenses to pay.
Don't wait, start your 529 Saving Plan today.
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