When you start saving for college, it is very exciting. Not only is it the wise and responsible thing to do, but you will get a great deal of pleasure out of knowing that you are taking steps to secure your financial future. Starting to save for college now will help you avoid taking out student loans once you have started your education. However, before you throw your money into the first college savings strategy that you see, there are four important questions that you need to ask yourself. Getting clear about the answers to these questions ahead of time will help you select the right college savings plan for you.
1. Do you want a financial advisor?
One of the best things about 529 savings plans is that they are open to everyone. You can have any income, and intend to save pretty much any amount of money that you like usually up to about 230,000 dollars. 529 savings plans often get a “bad rap” because they have a lot of fees attached to them (largely because they are tax-free or nearly so). However, there are also a lot of good things about 529 investing not just for the person going to college, but also for the other people in their lives.
Here are 3 things that you need to know about 529 savings plans that you might not have considered:
1. You can donate large lump sums that then grow tax free.
In 2002, 529 savings plans became exempt from federal taxes. These savings plans are combinations of stock-based investments and bond-based investments. Over time, they can accrue a fair amount of money, which makes them a great way to save for college and earn interest on your savings in the process. Once those earnings were no longer taxed on a federal level, the market for them has exploded into a multi-million dollar business.
However, while these plans sound like a great idea, they can be a bit tricky. In order to understand exactly what you are getting into – and make sure it is right for your budget – you need to understand exactly how the plans work. Understanding how they were created and where they are based is an important part of making a 529 plan work for you.
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