There are several strategies available for saving for your higher education. But what strategy is the best for you? A 529 plan, a Roth IRA, or an Education Savings Account? Read on to learn more about these options.
A 529 Plan is a state-operated investment program designed to help families save for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special benefits to plan participants. There are two general types of 529 plans: prepaid programs and savings programs. The states offer prepaid programs directly, while the savings plans are offered through investment companies.
With 529 savings plans, the account owner may receive tax breaks while the invested assets grow tax-free. Qualified distributions are federally tax-free as well. Amounts as high as $300,000 per beneficiary can be deposited into the 529 plan depending upon the program you’re investing with.
Roth IRAs are another investment vehicle often used for college saving. As long as your child has earned income, he or she could contribute up to $5,000 into a Roth IRA. Investments in a Roth will grow tax-free, and the principal can be removed at any time without penalty.
Education Savings Accounts (“ESAs”) allow parents to contribute up to $2,000 annually per child until the age of 18, provided the parents’ income falls within certain thresholds. Grandparents may also be eligible to make contributions on the child’s behalf. The money in ESAs grows tax-deferred and can be withdrawn tax-free to pay for qualified tuition, fees, room and board, and equipment. Funds in an ESA may also be used to pay for expenses of primary and secondary schools.
A Foresters Equity representative or advisor can assist you in determining which vehicle is right for you. Once you select your strategy, Foresters Equity’s relationship with over 100 investment companies will ensure you have a wide array of choices to implement your plan.