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Linda Winters     Linda Winters
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Everything You Need to Know About 529 Plans

Everything You Need to Know About 529 Plans


These college-savings accounts have improved, and now more states offer a deduction for contributing to one. If you are thinking about opening a 529 college savings account, now is the time to do it. Sure, most plans now let you invest any time during the year. But the sooner your money is in an account, the sooner it starts to earn tax-free returns. Plus, recent changes to the law make 529 plans more attractive than ever. These state-sponsored savings accounts offer people an easy way to save for college. Most states have a variety of investment options, require little money to open an account and have high – or no – contribution limits.

Today, 31 states plus the District of Columbia offer residents a tax deduction or credit for contributing to their state's own 529 plan. Kansas, Maine and Pennsylvania even let residents take the deduction for out-of-state 529s as well. Several states, such as Indiana, just started offering write-offs. Here are other reasons to consider a 529 plan:

  • They're simple. State 529 plans are easy. Choose an investment option and make contributions and the plan does the rest. Sit back while the state or a third party, such as an investment firm, manages your funds.
  • Contributions may be state-tax deductible. Thirty-one states and the District of Columbia allow you to deduct some or all of your contributions. Rules vary, so check with your state for more details.
  • They're portable. Depending on the state, you can choose from a number of different investing options. You also can switch investment tracks within the plan once a year. And if you don't like your state's plan, shop around. Plans are open to residents and nonresidents alike. You also can roll your savings into another state's plan without penalty.
  • There are no set annual contribution or income limits. Contribution limits vary by state, and some states do not limit contributions at all -- a good option for grandparents looking to transfer assets through estate planning.

If you would like to learn more about the advice contained within this article and how it could benefit you, please contact the professional who provided your subscription.

Reprinted with permission. All Contents © 2008 The Kiplinger Washington Editors




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