Why College Saving Plans Are Important

College education is getting expensive by the minute and it makes sense for parents to have an effective savings plan to fund their child's college education. Parents usually end up finding out that the cost of higher education is a lot more than they have saved and this can lead to running from pillar to post looking for aid. The most common savings plan for higher education is the 529 college plan. This plan allows anyone to save for a college education and the money you invest in this plan grows tax free if you end up using it for qualified education expenses. Depending on the state you live in, you can invest a maximum of hundred thousand dollars in a 529 college plan. Suppose you do not use the money for education, you can still withdraw the money but you would have to taxes coupled with a 10 percent penalty. However, the penalty can be waived if the child receives a scholarship or dies or becomes disabled. A 529 college plan can be easily purchased through a broker or a mutual fund company. The disadvantages of a 529 college plan is that it has limited investment choices and if your child applies for aid, the plan will be taken into consideration and may count against the child. You can also opt for a UGMA account. Here you can contribute as much money as you want as long as the annual contribution per person does not exceed $11,000. This is a custodial account where the parent is made into the custodian of the account. The account has to be set in the name of the child and money can be withdrawn at any given time. The downside of an UGMA custodial account is that it offers very little tax advantage. The tax is calculated at your child's tax rate and the first $800 is tax free if your child is under 14. Planning for college is important and it is the responsibility of the parents to do so. You can check out all the college investment plans and accordingly take a decision in selecting the best college saving plan for your child. The site uses cookies. They allow us to recognize you and get information about your user experience.By continuing to browse the site, I agree to the use of cookies by the site owner in accordance with Cookie policy