If you have children, now is the time to set up a 529 plan for your child. Even if your child is an infant, they are not too young to have their own 529 plan. A 529 plan is a great vehicle that will allow you to save for your child's future and grow any money that you invest in the plan as well until your child is ready to use it.
#1 Money Will Grow Tax Free
Although the money that you put into your child's 529 plan is not a tax-free contribution like the money that you contribute to your retirement account, it will grow tax-free. That means that the interest that compounds on the investment that you make into your child's 529 plan will not be taxed when your child withdraws the funds to pay for their education. This is a great way to grow tax-free money for your child's future.
#2 State-Based Tax Breaks
Although the federal government doesn't offer any tax breaks for investing in your child's 529 plan up front, many state's do. A large number of states will provide you with either tax deductions or credits on your state taxes for contributing to your child's 529 plan. In states that offer tax-breaks, it is a good idea to contribute to your child's 529 plan even when they are in college to continue to receive these tax breaks on the money you invest in your child's education.
#3 Easy To Maintain
It doesn't take a lot on your part to set-up and maintain a 529 plan for your child. Most of the work is completed up front when you enroll your child in the plan. Once the plan is set-up, you can program it to take automatic deductions from either your payroll or your bank. This requires you to only update the plan when you change jobs or bank accounts depending on how your automatic withdraws are set-up. You don't need to worry about the investment angle either; that is handled by the plan itself.
#4 Qualifies For Gift Tax Exclusion
You can put aside up to the federal gift tax amount for an individual person without having to pay any gift tax on your contributes to your child's 529 plan. This helps to ensure that you will not incur extra taxes just for helping set-up and fund your child's education.
Talk to an accountant or financial advisor, like one at Mcdonald Financial Corp, today about setting up a 529 plan for your child's education.