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Money Girl

108 MG 529 Plans Save You Money

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Broadcast on:
28 Jan 2009
Audio Format:
other

Like what you hear? Help us out by writing a review at iTunes. Questions go to money@qdnow.com. Thank you!

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Hello, and welcome to Money Girls, quick and dirty tips for our richer life. I'm your host, Laura Adams. In this episode, I'll discuss 529 plans and the many benefits they provide to millions of Americans who use them. A 529 plan is also known as a qualified tuition program. It's a tax-favored savings account that has become the most popular way to save for higher education. The idea is that you contribute money to the plan that can be used to pay for a student's qualified expenses at a specific eligible school. A 529 plan can be open for any adult or child in your family or even outside of your family. 529s are generally categorized as either prepaid plans or savings plans. With prepaid plans, you can prepay all or a portion of the cost. If the student decides to attend a different eligible school, the funds can still be used for qualified expenses. However, depending on which plan you have, there may be a penalty for this transfer of funds. 529 savings plans, on the other hand, are similar to a retirement account where your contributions are invested in chosen mutual funds or securities. The account value will fluctuate based on the performance of the underlying investments. Either type of 529 plan can be set up by states as well as by eligible institutions. These include colleges, universities, vocational schools, or other post-secondary schools that participate in federal student aid. The school you're interested in can tell you if they're eligible to accept 529 funds and if they operate their own plan. But if they don't operate one, don't worry. Every state now has at least one 529 plan in which you can participate. Enrollment in a 529 can be done directly with the plan manager or through an independent stockbroker or financial advisor. Understand that each plan has different features and benefits, so it's important to do some research before enrolling in one. I'll include a link in the show notes at moneygirl.quickanddirtytips.com to a handy 529 plan comparison tool, as well as to a lookup tool for 529 eligible schools. Many people believe that if they contribute to a state 529 plan that the student must attend a school in that state. In most plans you can choose any school no matter where you live or what state or institution manages the plan. You could live in California, invest in a Florida plan, but send a student to a North Carolina college. So don't fall for the misconception that a state-sponsored 529 plan is only for those who want to send a student to a state school. 529s offer some nice savings because contributions and earnings grow tax-free. Funds in a 529 are taxed only if withdrawals from the account exceed the total amount of qualified education expenses. You may be able to receive some additional tax advantages if you invest in a plan sponsored by your home state. Since 2012, City has been a proud partner of Global Citizen Festival, using the power of music to inspire people to help end extreme poverty. Tune in on YouTube September 28 to get inspired, experience performances from top artists, and find out how you can join us in taking action. Together, we can make an impact for the love of making a difference, for the love of progress. City, visit globalcitizen.org/city to learn more. September is a great month for planning. To start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans or travel, planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. 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See how you can save on every plan versus Verizon and AT&T at T-Mobile.com/keepandswitch. Up to four lines via virtual prepaid card, a left 15 days qualifying unlocked device credits, service-ported, 90-plus days with device and eligible carrier and timely redemption required. Card has no cash access and expires in six months. Another reason 529s are so popular is because they offer flexibility. You can roll over funds from one plan to another within 60 days without incurring a penalty. And the student or designated beneficiary can always be changed to another member of the beneficiary's family. So if the child you're saving for decides to become the next world champion poker player instead of going to college, no worries. There are no income or age restrictions placed on contributors or students. Everyone is eligible to take advantage of a 529 plan. The maximum amount you can contribute actually varies from plan to plan, but it's over $300,000 per student in many state plans. There's no annual limit to how much you can contribute. However, as I mentioned, contributions can't exceed the amount of educational expenses that the student will need. If you're not sure how to calculate this amount, contact the eligible school for a total estimate of qualified costs for the student. Qualified expenses that can be paid with 529 savings include tuition, fees, books, and all required equipment and supplies for coursework. Reasonable costs for room and board also qualify for those who are at least half-time students. Here's a tip for dealing with excess funds in a 529 plan. If the beneficiary has a family member who's a potential student, change the designated beneficiary on the account to his or her name instead of closing the account. This will help you avoid or perhaps delay having to pay taxes on a non-qualified withdrawal. See IRS Publication 970 for a list of relatives who qualify as members of the beneficiary's family for this purpose. If you want to say for the education of a child or other family member, I encourage you to open a 529 plan, or perhaps you're considering going back to school for an MBA, to become a pilot, or for cooking classes. As long as the school you'll attend is eligible to accept 529 funds, you'll benefit from setting up and contributing to a 529 plan for yourself. I'm glad you're listening. If you're not already receiving the show through a podcast aggregator such as iTunes, I highly recommend that you do so. Subscribing to the show through iTunes is completely free and simply means that you get each new episode as soon as it's released. Cha-ching! That's all for now. Courtesy of Money Girl, your guide to a richer life. Earning your degree online doesn't mean you have to go about it alone. At Capelli University, we're here to support you when you're ready. 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