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Are you familiar with the 529 plans? They have become quite popular because of the benefits they offer college bound students but what do you need to know. Find the 4 reasons below:

Control- Unlike UGMA’s (Uniformed Gift to Minors Account) you never lose control of the assets as the account holder establishes a beneficiary which can be changed if your child decides not to go to college. The child has no access to the funds.

Tax Benefits- Investing in a 529 plan offer savers special tax benefits. Earnings in a 529 plan are free of federal and in most cases, state income tax. One caveat, if funds are not used for college, you will be subject to income tax and an additional 10% tax penalty on earnings.

Financial Aid Benefits- Monies in 529 accounts receive favorable treatment in financial aid calculators. Beginning way back on July 1, 2006, assets held in pre-paid tuition plans, and college savings plans, will be treated the same with respect to federal financial aid purposes. Assets in these plans are not considered a student asset in the formulas used to calculate financial aid. Unlike UGMA, custodial accounts are considered student assets and weigh more heavily in the financial aid formula. TIP: If the grandparents set up the plan, it won’t show up.

No phase out on contributions- There is no limit on parental income and contribution limits are high. There is a one time $60,000 maximum to pre-pay five years up front.

Related posts:

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Tags: 529 accounts, 529 plans, cfp, college loans, college planning, college savings, federal loans, financial aid, financial planners, gerard simonelli

About the Author: Gerard Simonelli is a CFP for ARS Financial Services, Inc.

This entry was posted on Friday, November 7th, 2008 at 12:05 am and is filed under education financial planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.