529 and Education Savings
As the cost of schools and education increase, more parents are stuck wondering how they can afford to pay their children’s tuition. Should they start saving money? If they do what sort of account should they open? Luckily, the IRS has provided two types of plans that parents can use to save for their children’s future.
The first type of plan is the Prepaid Tuition Plan. Prepaid tuition plans allow the account holder(typically parents or guardians) to purchase units or credits are the participating schools for the current price. This works to benefit the parents as the price of credits continues to raise, so investing sooner will save more money in the long term. An issue with this plan is it can create a limit on where the child wishes to get their education, or if they choose not to attend that university the parent or guardian may be out of that money.
The second type of plan is the Education Savings Plan. The education savings plan can be opened and applied to a wide range of schools, and allows for up to $10,000 per year to be invested for each beneficiary. The education plan is based around an investment portfolio which includes a variety of options for the parent to choose from.
If you have questions about setting up a 529 plan for your children, or how it may affect your taxes, call us at the Center for Financial, Legal & Tax Planning, Inc.