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At Investment Insight Wealth Management, LLC we know the value of a college education, and we are aware many families struggle with figuring out how to pay for the investment. With a 529 college savings plan, parents and children can rest easy knowing they are saving for the future.
A 529 plan is a plan that allows for prepayment of qualified higher education expenses. With this plan, there are no restrictions on the amount of income you can save every year. However, because the contributions to the 529 plan cannot exceed the amount required to take care of higher education expenses, parents should be careful, as it is possible to overfund an account.
Many states and financial institutions offer 529 plans, which allow for tax-free growth of your savings. Using a 529 plan to save for college will not lock your student into attending college in one particular state, as these plans are used to fund college tuition and other expenses nationwide. You can be a North Carolina resident, invest in a Nevada-based plan, and attend school in California, but you should always check to make sure the institution you want to attend is eligible under 529 rules.
Most states have at least one 529 plan available. It’s up to each state to decide whether it will offer one, and what their plan will look like, so they can differ from state to state. It is important to research the features and benefits of a plan, and compare between plans before choosing which to invest in.
While you cannot deduct your contributions on your federal tax return, the investment grows tax-deferred, and distributions to your beneficiary are tax-free on the federal level.
Your state may also offer tax benefits for contributions to your 529 plan, including an upfront deduction for your contributions, or exemptions on withdrawals. Research the benefits of investing in your states 529 plan.