This video discusses 529 College Savings Plans. If you have children and you are planning to pay for their college tuition, you should definitely consider 529 saving accounts. These accounts are designed to provide tax benefits for parents who plan to save for their children’s college expenses. It is super simple to set up a 529 College Savings Plan. However, many people end up paying thousands of dollars in hidden management fees by hiring professionals for something that they can easily set up in 10-20 minutes.
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✅ REFRENCES ✅
📚 Vanguard’s 529 state tax deduction calculator
📚 529 state income tax deductions by state
📚 Backer | The Social College Fund
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✅ About this video ✅
(1) Introduction to 529 Accounts:
An Education Savings Plan or a 529 plan is an investment account that you can use for education savings. This means that you can invest your money in a 529 savings plan to pay for your children’s education expenses when they are ready to go to college. These plans are tax-advantaged accounts meaning that if you choose to invest in them you will end up paying less taxes compared to other types of investment accounts. You can also use tools such as Backer, a social savings app that allows friends and family to help contribute to 529 plans.
(2) Tax Benefits of 529 Accounts:
The plans are usually sponsored by states and offer great tax benefits, including:
(1) Contributions to a 529 plan are post-tax and are not deductible from federal income taxes. However, over 30 states and the District of Columbia offer state income tax deductions or tax credits for contributions to 529 plans, though you may be restricted to investing in your home state’s 529 plan in order to claim the benefit.
(2) These plans also offer tax-deferred growth meaning that earnings in a 529 plan will not be subject to federal tax. As you know, some stocks in your investment portfolio pay regular dividends which are considered a source of income and hence, are subject to income taxes. However, dividends that you receive in a 529 account are exempt from federal income taxes.
(3) 529 plans offer tax-free withdrawals which means that you won’t be taxed on the money you withdraw for qualified education expenses. In other words, you will not pay federal and usually state taxes when your children are ready to use the funds to pay for their education, as long as the money is used for qualified expenses. This is in contrast to other regular investment accounts where you have to pay capital gain taxes when you decide to withdraw from those accounts.
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✅ Timestamps ✅
1:46 PART 1: Introduction to 529 accounts
3:21 PART 2: Tax benefits of 529 accounts
3:38 Tax Benefit #1: State income tax deductions
4:27 Tax Benefit #2: Tax-deferred growth
5:24 Tax Benefit #3: Tax-free withdrawals
6:06 PART 3: Dos and Don’ts of 529 plans