If you’re expecting a refund this tax year, consider using the amount to invest in your child or grandchild’s college education. Higher education costs are on the rise, and more parents and grandparents are expecting to contribute to this expense. Lump-sum contributions, as well as regular investments, can help keep college investing plans on track.
There are many investment vehicles available to save for higher education. A 529 education savings plan, in particular, is a helpful way to prepare for college expenses. Benefits include:
- Education options. The student may use the money to pay for qualified education expenses at any accredited university, college or approved technical or vocational program.
- Estate planning. You can can maintain control of the 529 plan account and are allowed to remove contributions and future earnings from your taxable estate.
- Flexible control. You can maintain control of the money if you are the 529 plan account owner, and anyone can contribute to the account.
- High contribution limits. State-sponsored education savings programs allow larger investments ($250,000 to $350,000 as a lifetime limit) compared with other education savings methods.
- Income tax benefits. Investments grow on a tax-deferred basis, and earnings on qualified withdrawals are federal income tax-free, protecting investors’ wealth. State tax benefits vary.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
As with any investment, withdrawal value may be more or less than original investment.
The availability of tax and other benefits may be conditioned on meeting certain requirements, such as residence, purpose for or timing of distributions or other factors.