Are College Saving Plans So Critical For You To Take Into Consideration?
Posted at by NReed on category FinanceAs you might have already noted college education costs are getting more and more expensive and that is the reason why having an effectual savings plan to finance child’s college education is considered to be a really good idea for parents.
It goes without saying that 529 college plan is one of the most general savings plan for higher education. To go into more details it should be stated that it allows each person to save for a college education. Moreover, the money invested grows tax free if you end up using it for qualified education expenses.
The highest amount you can invest depends on the city you live in. If the case is that you do not utilize the money for education, it is still possible to withdraw it, but it should be pointed out there will be taxes coupled with a 10 percent penalty. The penalty can be waived in case the child gets a scholarship, becomes disabled or dies.
You can easily buy a 529 college plan through a broker or a mutual fund company. But before this you need to have knowledge of the major drawbacks of this plan. In simple words a 529 college plan has limited investment choices and if your child applies for aid, the plan will be considered and may count against the child.
UGMA account is one more available alternative you can pick. If you make this choice you will be able to contribute as much money as you want, but the annual payment per person can not go over $11,000. The is a need to call attention to that UGMA account is a custodial account where the parent is made into the custodian of the account. You should also remember that the account needs to be set in the name of the child. This account enables withdrawing cash at any time you want.
But, again, there is a weakness you need to be aware of. I am referring to the fact that UGMA account offers very little tax advantage. Basically speaking the tax is calculated at your child’s tax rate and if your child is under 14 the first $800 is tax free.
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