I’d like to make sure that my daughter doesn’t accumulate the same amount debt from attending college when she gets older that many people in my family have. Should I be investing in a 529 on her behalf? Erika – Chicago, Illinois
In layman’s terms, 529 plans are simply investment accounts where your money can grow free from federal income tax and withdrawn federal income-tax free if used for “qualified higher education expenses.” These expenses are laid out in detail in each states particular 529 plan offering, of which there can be many to choose from. Another great perk of 529s is that many have added state tax benefits. For example, residents of Illinois who contribute to that states’ 529 pay no state tax on earning and withdrawals for qualified expense and contributions of up to $13, 000 per parent, per year are tax deductible. But beware, if you decide to use this money of anything other than education you will be asked to pay the taxes on your earning and you’ll be hit with a 10% federal tax penalty.
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