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COLLEGE SAVINGS PLANS
We all want to save money to help pay for our children's higher education. College tuition is NOT cheap and is NOT getting any cheaper by any means. But what's the best way to do it? There are two very good ways to do it:
529 Tax Qualified Savings plans are a great way to provide funds for a child's education and they are more flexible than ever thanks to changes made to them in 2017. Now you can also use these funds for up to $10,000 per year private K-12 tuition, not just college. The tax savings provided by these plans are very attractive, especially here in California. Earnings grow income tax deferred and there is no Federal tax on the money when withdrawn and used for qualified education costs. There are, however, some risk associated with these plans.
- Back in 2008 many people with 529 Savings plans lost 40% of the total value in these plans when the markets crashed. Not good for people who had saved for a decade and that were sending their child off to college in 2008-2011.
-Funds must be used to finance a qualified relatives education expenses. If your child decides not to attend college or it is not spent on something other than private K-12 tuition there is a 10% Federal penalty and a 2.5% State tax penalty imposed on any withdrawals.
Still, the tax advantages of a good 529 College Savings Plan make them a very good way to save for a child's higher education.
Indexed Accounts are another way to save for a child's education that is even more flexible but which does not have the risks stated above but also does not have the tax advantages of using an indexed account. With an indexed account you do not get the tax advantages but the market risk is eliminated. With an indexed account your contributions grow with double digit potential in years the stock markets do well but in years the stock markets lose value you indexed account does not. Additionally, there is no requirement that the funds be used for education. So, if your child does not attend college you can use the funds for other things (start up funds for a business, trade school tuition, a down payment on a house for the child to name just a few) with no penalty imposed. And the money withdrawn is always tax free.
Complete Life And Health can help with either or both of these valuable college savings tools. Contact us today to set up an appointment for a free, no obligation consultation to dive deeper into both of these options to figure out which is better for you and your family.
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