Personal Finance > College
The 529 Solution
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4. The 10 most frequently asked 529 questions

  The 529 Solution  
     
1. Introduction

2. Who should get one

3. How to pick the right plan

4. The most frequently asked 529 questions

Q. What's so great about 529 plans?

A. You never have to worry about annual taxes on dividends and gains, and withdrawals are tax-free too. What's more, if you invest with your own state's 529, you may get state-tax deductions on contributions or exemptions on withdrawals.

Q. Can anyone open a 529 account for any child?

A. Generally, you ("the account holder") can open an account on behalf of nearly any child ("the beneficiary"), regardless of your income. Grandparents, for example, can save on behalf of grandchildren. You can even put away money for someone who's not a family member. A handful of states open their plans only to state residents -- but most are available to everyone.

Q. Can two people open an account for the same child?

A. You can open more than one account in a single state for the same child, and more than one person can fund a 529 for the same beneficiary. No matter the number of accounts, the state's maximum contribution limit still applies to the beneficiary. States don't have to count balances in out-of-state accounts when determining whether you've met your limit, but some have started doing so.

Q. What if I need to tap the plan?

A. You can make a withdrawal anytime, but you'll pay taxes plus a penalty on the earnings -- usually 10 percent -- if the money is not used for higher education.

Q. Does my child have to go to a state school?

A. No. You can use the money at any accredited degree-granting school, whether it's private, public, undergraduate, or graduate.

Q. What kind of educational costs can the money be used for?

A. In all states, tuition qualifies. Most states also permit 529 money to be used for other costs, such as room, board, fees and books.

Q. What if my child doesn't go to college or has money left over?

A. You can take out the money, paying taxes and penalties. In most states, you can leave money in the plan indefinitely, in the hope that your child will eventually go to college. A third option is to name a new beneficiary on the account. If your child dies or becomes disabled, most states will waive penalties on withdrawals.

Q. Can I switch investment options?

A. Not without going through the rollover process described above. An easier alternative is to open another account for the same beneficiary and invest future contributions in a different fund.

Q. Can I also fund a Coverdell Education Savings Account?

A. Absolutely -- that restriction changed at the beginning of 2002. You can contribute up to $2,000 annually to a Coverdell, regardless of how much you contribute to a 529.





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.