Which Of These 3 College Savings Plans Is Right For You

Which Of These 3 College Savings Plans Is Right For You

529 Plans States offer these, often with state income tax deductions, but limited investment choices. You can choose another state’s plan, although you’ll likely lose state tax benefits. Savings grow tax free, there’s no income tax on withdrawals for educational expenses and no time limits. Contribution limits are high, beneficiaries can be any age and can be changed if the original beneficiary doesn’t use all the money. There are no tax penalties if money isn’t needed because of scholarships, GI benefits or military academy acceptance. 529s will not greatly affect financial aid as long as they’re held by custodial parents.

Educational Savings Accounts (ESAs) These can be used for K-12 educational expenses and may offer more investment choices. Similar tax advantages to 529s, but no state tax benefit. There are income limits, yearly contribution limits, the beneficiary must be under 18 and the money used before they’re 30. The assets do affect financial aid.

Roth IRAs Money for college can be withdrawn from these retirement savings. You’ll pay income tax, but no penalties. Withdrawals are counted as student income for the following year’s financial aid, so people often save this money for the final year.

With all matters relating to taxes, always consult with a tax professional before making any decision.

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Phone: 917-742-8547
Dated: April 6th 2017
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