529 College Savings Plan
A 529 college savings plan is a state-sponsored program that allows parents or
relatives to invest for a child's college education. These plans provide tax-deferred
growth of investment earnings and allow the accountholder to withdraw funds tax
free to pay for qualified education expenses (tuition, books, supplies, room and
board, etc.) at most accredited colleges and universities throughout the United
States. All states have their own 529 plans; most are very similar with the main
difference being the investment options within each plan. You may participate
in any 529 plan; residency of that particular state is not required.
There is no income limitation for contributing to a 529, and the account legally
belongs to the accountholder not the child. Therefore, the parent (owner) retains
control and has the ability to change beneficiaries to another child without taxable
consequences. Federal law prohibits the owner from having direct control over
the investment selection, so each state typically works with an investment manager
who offers a wide array of investment options for the owner to choose from.
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