To maximize the benefits from a 529 plan, one should focus on the two primary sources of tax-advantaged contributions: the plan and saving for college. Of course, there are a lot more sources for these types of investments, but these are the ones that most people should know about with an amount at which one can make use of them.
It is important to note that in order to maximize their benefits from a 529 plan, it is also important to know how much one can contribute and save every year without incurring any penalties or taxes!
In the United States, 529 plans are tax-advantaged investment vehicles that provide a way to save for college. Contributions to these plans are not deductible from taxable income. Rather, these contributions are made with after-tax dollars and then grow tax-free until they are withdrawn. Thus, when a plan is used to pay for qualified education expenses, the distribution is free of federal income taxes as well as any state and local taxes. Some states offer additional tax advantages by also excluding contributions from personal income taxes.
A 529 plan works like this: A person first contributes funds to a 529 plan, then the earnings on those contributions grow tax free, and when the money is withdrawn, it is distributed free of federal income taxes and any state or local taxes. So if a person makes a $10,000 contribution to their 529 plan at a 7% annual rate of return, after 7 years he or she will have $15,527 (if put into an aggressive plan). $10k + ($10k x 7%) = $15k.
It is important to note that in order to maximize their benefits from a 529 plan, it is also important to know how much one can contribute and save every year without incurring any penalties or taxes!
In the United States, 529 plans are tax-advantaged investment vehicles that provide a way to save for college. Contributions to these plans are not deductible from taxable income. Rather, these contributions are made with after-tax dollars and then grow tax-free until they are withdrawn. Thus, when a plan is used to pay for qualified education expenses, the distribution is free of federal income taxes as well as any state and local taxes. Some states offer additional tax advantages by also excluding contributions from personal income taxes.
A 529 plan works like this: A person first contributes funds to a 529 plan, then the earnings on those contributions grow tax free, and when the money is withdrawn, it is distributed free of federal income taxes and any state or local taxes. So if a person makes a $10,000 contribution to their 529 plan at a 7% annual rate of return, after 7 years he or she will have $15,527 (if put into an aggressive plan). $10k + ($10k x 7%) = $15k.
