With the cost of college continually rising, investment in a 529 plan is a useful strategy to ease some of the pain of paying for a child's higher education.
CollegeSavings.org describes the 529 plan as "a tax-advantaged investment plan designed to encourage saving for future higher education expenses of a designated beneficiary."
Money withdrawn from the plan for allowed educational expenses is federal income tax exempt. Many states, including Alabama, offer comparable tax benefits as well.
Alabama currently offers two different 529 plans: the CollegeCounts 529 Fund and the CollegeCounts 529 Fund Advisor Plan. While the details of the plans are the same, the former is sold directly by state agencies, while the latter is sold through a broker who can provide advice and assistance.
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The state formerly offered a Prepaid Affordable College Tuition Program, but enrollment in that program closed in 2008.
Alabama's 529 plan offers a choice of 34 investment options. Contributions to the plan are tax deductible at the state level up to $5,000 for a single return or $10,000 for a joint return. Funds in the plan are not subject to yearly federal or state income tax, allowing for savings to grow faster.
Funds can be withdrawn tax-free for qualified expenses such as tuition, supplies, fees, books, equipment, and "reasonable room and board," according to CollegeCounts529.com. State and federal taxes as well as a 10 percent penalty may apply to funds withdrawn for non-qualified expenses.
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There is also a CollegeCounts 529 Rewards Visa Card as an additional way to save. Cardholders earn 1.529 percent on everyday purchases. When rewards reach $50 or more, the money is automatically added to the designated 529 plan account on a quarterly basis. Family and friends can apply for their own CollegeCounts 529 Rewards Visa Card linked to the same 529 account in order to maximize contributions for the beneficiary.
Funds from the 529 plan can be used at any post-secondary educational institution that is eligible for the U.S. Department of Education student aid program.
Investment in Alabama's 529 plan offers parents an easy way to save for their children's college education while leveraging the power of compounding interest over time to maximize their benefits.
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