Ask a goalgami Expert:Answer

Have a financial question?SUBMIT>



Question:


What is the benefit of contributing to a 529 plan for a child’s college education instead of putting the money in a CD or a money market account?
-Ali_NY


Answer:


It’s not an either/or proposition. A 529 plan, known formally as a Qualified Tuition Plan, is not an asset in itself but rather a vessel that holds assets – the cash instruments you mention and also stocks and bonds – intended for tuition and other higher education expenses. The plans, which are offered by states to help make their colleges more appealing, offer various tax breaks. Interest, dividends and capital gains accrue free of federal and state tax, assuming the money is spent eventually on a qualifying education program, and some states also allow a tax deduction on contributions. A 529 is just one college savings option, by the way. Coverdell accounts and savings bonds provide tax benefits, too, and may make more sense for families that have modest incomes or are likely to make fairly small annual contributions.
-Conrad de Aenlle



< BACK