College Education Plans – 529
For decades, the US government and IRS have worked hard to create ways to motivate US citizens to save for the future. In the 1970s, 401K plans were introduced to provide ways to motivate Americans to save for their retirement in lieu of relying solely on Social Security. 401K plans have allowed taxpayers to sock away pre-tax earnings into investment accounts for the future, deferring taxes until such time their 401K funds are withdrawn.
With the growing costs of getting an education in America, a similar plan to the 401K plan was introduced by Congress in 1996. The plan is called a “529 plan”, named after the IRS code to which the plan is tied. By definition, these “qualified tuition plans,” are flexible, tax-advantaged accounts. Taxpayers can invest in them with pre-tax dollars to be used specifically as educational savings.
Below, we will discuss how these plans work and what if any tax advantages they offer to the taxpayer.