The economic recession, which had given a massive blow to the economic condition of the United States as well as other countries of the world, has made people understand the need to save money. Many people in the United States are now searching for different investment plans to save money for supporting their future plans.
The demand for the students’ savings plans have also increased significantly after the recession. Numerous parents are now opting for Coverdell Education Savings Account and 529 Plans to save money for child’s education.
If you also want to proceed in the same way, you can take any of the abovementioned plans, as both have the same aim, to support educational expenses. However, for making the best decision, you should be familiar with the differences between the two plans.
529 Plans- The Basic Details
529 plans have been the most popular choice among the parents looking to save money for their child’s college education. These plans are either sponsored by the state or by the colleges and educational institutions. Thus, the money that is deposited in these accounts is exempted from federal income tax and state income taxes.
If the investments are started early, one can save a lump sum amount of money till he attains the age of getting enrolled in a college. 529 plans, which are broadly classified into college savings plan and prepaid tuition plans are available in every state.
Thus, anyone can get these plans to support the monetary requirements of college education. As there are different options for saving money, one can easily select a plan based on his financial abilities.
Prepaid tuition plans have gained immense popularity these days, as it allows students and parents to purchase credit for funding college education. If one can make the estimates correct, he will not have to spend a penny for his child’s college education.
College saving plan is also a good choice for someone who wants to deposit a substantial sum of money for higher studies’ expenses. In case prepaid plan is not available in your state, this can be a good alternative. The upper limits for saving money varies depending on the type of the plan as
Coverdell Education – Few Important Facts
While the 529 plans are meant for funding the expenses of college, the Coverdell plans can be used for funding any sort of qualified education, from elementary schools, high schools or even in colleges. The amount deposited in this account grows as tax free income yet the distributions are taxed if the money is not used for meeting education expenses.
When you are planning save some money for your child’s education by investing in Coverdell Education plan, you need to know that one can make a maximum deposit of $2000 per year for every student.
Also note the account can be opened only when the beneficiary’s age is below 18 years or he is physically challenged.
When you are selecting college education savings plan, understanding the basic details of two most popular plans is important.