If you have college bound kids, you should be aware of the 529 college savings plan, one of the best ways to save for your kids’ educational future. The 529 college savings plan investment that can be utilized by any college in the country.
Many parents are not sure whether or not the 529 is the best they can do but you can use a calculator to help you with that. You can compare your potential income in your taxable account with what you might earn under a 529. Depending on how time you have available prior to starting college you have the option to come ahead with the 529 college savings plan.
Weigh your options
Prior to starting to use a plan estimator, there are a few things you probably should think about. The first thing is that a lot of calculators will only work with college savings plans. So consider a prepaid tuition plan only if you know for a fact that the person who benefits of the plan will attend a 529 friendly school. These plans guarantee rates later and taking money from your plans are tax-free.
Withdrawals that are free of tax for qualifying the colleges costs from a 529 college savings plan are considered gifts for tax purposes This works for annual contributions less or equal to 12,000 for individuals, but couples can have up to 24,000 that are doing join contributions. You might also make a lump sum payment totalling five years of contributions which total 60,000 dollars for individuals or 120,000 dollars for married couples.
Also keep in mind you need to prepare a separate 529 college savings plan for each child or grandchild but remember the limits would apply to each account separately.
Gains from investments related to your 529 college savings plan is subject to the lower capital gains rate, if it is held for more than twelve months. This also goes for qualified dividends. But short-term gains as well as interest are taxed at your regular tax rate.
How the tax savings calculator works
As a rule, most tax savings calculators will need this information: the years left until the child enrols in college the estimated rate surrounding college funds if you invested in a taxable account rather than a 529 plan, No matter to if you make a lump sum payment or smaller payments and the number of years you will contribute, and the expected return.
The results will return the value at college age, presumed after-tax value at college age as well as what you’ll have and what is gained from investing in a 529.
Finally, estimates are just that – estimates so you’ll be clueless as to what the final amount will be until you start investing. But self-education before you decide on a plan will help you determine better what you should get.

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