Sacramento and Roseville Accounting for 529 College Funds

Cook CPA Group

Saving for college is important. With college becoming more expensive all the time, parents and relatives of college-bound children are wise to beginning saving for their children’s’ education as early in the child’s life as possible. And while there is a good amount of investment options for college funds, a 529 college savings fund – which allows an account owner to save money for a child’s education tax-free – is often regarded as the simplest and most beneficial for college-bound families across the country.

A 529 college savings fund might be the best option for you. The licensed accountants at Cook CPA Group are ready to help you make the right choice about your child’s future. Get in touch with us today by calling (916) 269-9281 or visiting us online.

What is a 529 College Savings Plan?

A 529 college savings plan is a tax-free savings plan that is intended solely for costs connected to education. It is named after Section 529 of the Internal Revenue Code, which is the tax rule that led to the creation of qualified tuition programs for education expenses that are exempt from taxation.

There are two types: a prepaid tuition plan and an education investment fund. A prepaid tuition plan allows the account owner to buy units of education (usually by the credit) to be used by their child in their future. It is a good way to beat the cost of inflation, but its major drawback is that it can only be used for tuition and not room, board, books, or other education-related costs.

The other type of 529 college savings plan is the education investment fund, which is much more frequently used by people trying to save for their child’s education. An education investment fund is simply a tax-free fund that can be used for any type of education, including room, board, and books. This covers the cost of attending college or higher education but can also be used for K-12 education.

Advantages of a 529 College Savings Plan

The biggest advantage of the 529 college savings fund is that it is tax-free. The account itself is not taxed and the money will not be taxed when it is taken out to be used to pay for tuition. If a 529 account owner withdraws funds at any time that is not for the purpose of education, then income tax will be applied, as well as a 10% penalty tax.

Another major advantage of putting your money is a 529 college savings fund is that they are accessible, simple, and flexible. Any person above the age of 18, regardless of their income, is able to open a 529 college savings fund. The funds can be applied to the cost of education at any public or private school in the United States, and even some schools outside of the United States.

A 529 account owner has a number of options while maintaining their account — for example, they are able to change the beneficiary of the account to another person within the immediate family at any time. Account owners are also able to change their investment options two times per calendar year and roll over the funds into a different 529 savings plan within one 12-month period.

Disadvantages of a 529 College Savings Fund

There are certain drawbacks to having a 529 college savings fund. A 529 savings fund may make a student less qualified to receive financial aid, since a 529 college savings fund is counted as an asset. However, if a 529 fund is taken out and maintained by a grandparent or other relative, then FAFSA will not consider the fund to be an asset.

A slight drawback to the 529 plan is that any money left over after the education has been paid for will be taxed. The extra money can be transferred to a fund for graduate education, or to the account of another family member. It should also be noted that there are limits to how much can be invested into a 529 college savings fund, which vary by state; they range from $235,000 to $520,000. Despite these drawbacks, the 529 savings plan is still the best options for many families when compared to other options.

529 College Savings Plan Investment Options

The money you invest into a 529 college savings plan will likely be placed in exchange-traded funds or mutual funds. You have two options when choosing the mix of funds that the money will be placed into.

The first is the age-based option, which will automatically adjust your mix of assets to become less risky as he beneficent gets closer to the age at which they’ll use the funds. This means that the amount of stocks will slowly be replaced by cash and bonds. The second option is known as the static choice and will hold your group of funds in a static allocation for the duration of its existence.

Work with Our Sacramento CPA Group for Help with College Fund Management

The accountants at Cook CPA Group in Sacramento understand how important college is to your child’s future. We want to help you secure the funds necessary to allow them to succeed. Our team of experienced CPAs can ensure that you choose the right plan and manage it correctly in preparation for your child’s education. If you would like to learn more about how we can help you, get in touch with us by calling (916) 259-8471 or visiting our website today.

We offer services for executives, business owners, and individuals.
Find out how we can help you.