As the costs of college tuition continues to increase, it is never too early to start saving for future higher education expenses. A 529 plan is a tax-advantaged investment that simplifies saving for college or other post-secondary training for a designated beneficiary, such as a child or grandchild. 529 plans allow for tax-free growth and withdrawals when the funds are used for education expenses, such as tuition, books, and room and board. Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts can also be used to help save for a minor’s anticipated education expenses.
Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.