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COLLEGE SAVINGS
The ABCs of education savings
Our helpful guide will teach you the basics of education savings and how a 529 plan can help you plan for future college costs.
With back-to-school season around the corner for many, students of all ages are preparing for the upcoming school year. Whether this includes buying school supplies, paying tuition, or getting a new laptop, financial decisions are certain to be a part of these preparations. A 529 savings plan can help alleviate some of the pressures of these financial decisions by allowing for tax-advantaged savings that can help with future education costs. We’ve compiled three key points about 529 plans to know going into the school year.
One of the largest features of a 529 plan is that earnings made on a 529 account are exempt from federal taxes — this means you can grow your contributions completely free of federal taxes while in the account.
Additionally, withdrawals made from 529 accounts are tax-free as long as they are used for qualified education expenses; withdrawals made for non-qualified expenses will incur a 10% penalty on the earnings portion of the withdrawal.1
In terms of 529 state tax benefits, each state operates differently, so you may need to explore the various 529 plans offered by different states to find the best fit for you. (Check out our interactive map of 529 tax benefits by state.)
Each 529 account has one account owner and one beneficiary. The account owner can control the contribution level, make investment decisions, and make withdrawals to pay for the beneficiary’s qualified expenses. Account owners also have the power to change the beneficiary once per year for any reason. For example, let’s say that the original beneficiary of the 529 account chooses to not go to college; the account owner can then transfer the money to a newly-changed beneficiary to use for their educational expenses instead.
Although account owners are commonly the beneficiary’s parents or grandparents, anyone can be the account owner of a 529 plan if they are 18 years old or above. This includes not only parents and grandparents, but other relatives, friends, and just about anyone else who wants to help out as well. You could even name yourself as both the account owner and the beneficiary, so long as you are at least 18 years old
Even though 529 plans are commonly utilized (and a great tool) for the purpose of saving for college, they are not limited to just that. There is still a large variety of items outside of college tuition that you can use your 529 funds for. Qualified expenses include:
For more information about 529s and the importance of starting an education savings plan, visit our ABCs of Education page. To see the impact of how your savings can help your child’s future, check out our College Savings Calculator.
Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
The ABCs of education savings
Our helpful guide will teach you the basics of education savings and how a 529 plan can help you plan for future college costs.
What is a 529 plan?
Saving for college can seem like a daunting challenge, but a 529 plan can help you get started. Learn more about how a 529 plan can help save for higher education.
College savings calculator
Start planning for tomorrow's education expenses today. Use our convenient calculator to estimate your potential education savings with a CollegeBound 529 plan.
Important information
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Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program.
For more information about CollegeBound 529, contact your financial professional, call 877-615-4116, or visit www.collegebound529.com to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing. Invesco Distributors, Inc. is the distributor of CollegeBound 529.
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