A College Savings Plan - 529 Plan Explained | Summary and Q&A

TL;DR

A 529 plan is a college savings plan that offers tax advantages, allowing for tax-free investment returns when used for qualified educational expenses.

Key Insights

• 🌱 There are two primary types of 529 plans: prepaid tuition plans and college savings plans, with the latter being more common.
• 🤑 Contributions to a 529 plan are made with post-tax money, similar to a Roth IRA.
• 🌱 Investment returns in a 529 plan are not subject to federal taxes if used for qualified educational expenses.
• 👨‍🏫 Each state offers different tax advantages for 529 plans, so it's important to explore options based on residency and desired school location.
• 🌱 The beneficiary of a 529 plan cannot withdraw funds without the approval of the account owner, providing the owner with control over the account.
• 🤑 If a child does not attend college, the account owner can change the beneficiary or withdraw the money with penalties and taxes.
• 🌱 Scholarships do not cause the forfeiture of 529 plan funds, although taxes or penalties may apply.

Transcript

a 529 plan is a college savings plan that has tax advantages that every parent or possible parent should know about now there are two primary types of 529 plans prepaid tuition plans and college savings plans also known as investment plans investment plans are far more common so that's where we're going to focus on this video so here are the basics... Read More

Questions & Answers

Q: What are the two primary types of 529 plans?

The two primary types of 529 plans are prepaid tuition plans and college savings plans, with the latter being more popular.

Q: Can a person invest in a 529 plan from a different state?

Yes, an individual can invest in a 529 plan from a different state, and the beneficiary can attend college in any state. Each state offers different tax advantages, so it's important to research options.

Q: What happens if my child doesn't go to college?

If the intended beneficiary doesn't attend college, the account owner can change the beneficiary to another family member penalty-free. Alternatively, the money can be withdrawn with a 10% penalty on investment returns along with taxes on those returns.

Q: What happens if my child receives a scholarship?

If a child receives a scholarship, the money in the 529 plan is not lost. However, there may be taxes or penalties when withdrawing the money depending on the circumstances. Consulting with a tax advisor or investment professional is recommended.

Summary & Key Takeaways

• 529 plans consist of prepaid tuition plans and college savings plans, with the latter being more common.

• Contributions to a 529 plan are made with post-tax money, similar to a Roth IRA.

• Investment returns in a 529 plan are not taxed at the federal level if used for qualified educational expenses.