Benefits Of The Prepaid Plan

1038 WordsSep 23, 20165 Pages
We know college can be very expensive. There are many expenses for higher education including; tuition, room and board, books, and extra cost. That being said, there are many programs and plans that can assist with the cost. I will discuss 529 plans, Coverdell education savings account, American Opportunity Tax Credit, Lifetime Learning Credits, and tuition fees. There is a 529 Plan that can help the parent start preparing for their child’s college. The plan will help families save many for future college funding. The plan is setup into two plans, saving and prepaid. Saving plans work by investing your money in shared funds. If the family were to choose the savings plan, it comes with different options to invest the family’s money in. The account will either increase or decrease in value based on the investment. The prepaid plan will allow the family to pre-pay all of the cost for public higher education. The prepaid plan may also be converted for a private college. Even though contributions are not deductible, the income in the plan is federally tax-free. Therefore, the income will not be taxed when they are removed to pay for college. The 529 plan does not have to be reported on tax return. The donor will stay in control of the account. The account owner can withdraw funds at any time, but non-qualified withdrawals will earn income tax and a ten percent tax. Anyone can qualify for a 529 plan. There are no limits on income, age, or yearly contribution. (§529) Coverdell

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