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Considering educational savings account options

Оглавление

You’ll hear about various accounts you can use to invest money for your kid’s future college costs. Tread carefully with these, especially because they can affect future financial aid.

The most popular of these accounts are qualified state tuition plans, also known as Section 529 plans. These plans offer a tax-advantaged way to save and invest more than $100,000 per child toward college costs. (Some states allow upward of $300,000 per student.) After you contribute to one of these state-based accounts, the invested funds grow without taxation. Withdrawals are also tax-free provided the funds are used to pay for qualifying higher-education costs (which include college, graduate school, and certain additional expenses of special-needs students) as well as up to $10,000 per year toward K-12 school expenses. (The schools need not be in the same state as the state administering the Section 529 plan.)

Section 529 plan balances can harm your child’s financial aid chances. Thus, such accounts make the most sense for affluent families who are sure they won’t qualify for any type of financial aid. If you do opt for a 529 plan and intend to apply for financial aid, you should be the owner of the accounts (not your child) to maximize qualifying for financial aid.

Investing All-in-One For Dummies

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