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There are a few ways you can save funds specifically for college and educational expenses. Depending upon your circumstances, one or more of these savings vehicles may be appropriate for you. Two alternatives that offer special tax treatment are the 529 plan and Coverdell savings account.
529 Plans are state-sponsored investment programs. There is no guarantee by the issuing municipality or any government agency. There may be tax benefits and other advantages to plans offered by your resident state. You should consider the potential benefits (if any) offered to residents by your own state’s plan (if available) prior to considering another state's plan. The availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions, or other factors. With very few exceptions, if withdrawals are made from a 529 Plan for purposes other than education, they are considered non-qualified withdrawals, and the earnings will be subject to a 10% federal tax penalty and possibly state tax penalties. As with all tax related decisions, consult with your tax adviser. Information herein is not intended to be tax, legal or investment advice. Please consult a qualified professional and review the program prospectus or offering statement before investing. Please also note that assets in a 529 Plan could impact the beneficiary’s ability to qualify for grants and student loans. Annual asset charges for a 529 plan may be higher than corresponding share classes of underlying mutual funds.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.