A 529 college savings plan is a unique savings strategy in that it allows you to support your grandchild’s future and enjoy personal financial advantages along the way. Here are a few of the key benefits grandparents ask me about most:
State Income Tax Deductions
A number of states let you deduct your annual contribution against your income, potentially lowering your state tax bill. Find out if your state plan offers this tax advantage.
Tax-Free Growth Potential
Any earnings on the money you put into a 529 account are automatically re-invested, putting the power of compound interest on your side. The longer your money is invested in a 529 plan, the more time it has to potentially grow tax free.
When you withdraw the money to pay for qualified education expenses, you pay no federal or state income taxes on any earnings.
Estate and Gift Tax Advantages
You can contribute up to $14,000 into a 529 college savings plan each year to reduce your taxable estate without paying the gift tax. Consult your tax adviser.
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