How to Use a College Savings Account
When students participate in a college savings plan, they can put money aside for school. The more money that is contributed to the savings account plan, the more is available to spend on higher education. There is a variety of things that students can spend the money on, depending on the type of college savings plan they have. Some programs are more flexible than others, and they all have different rules. There are several different types of college savings plans available.
529 Plans
A 529 college savings plan is a program endorsed by the federal government that gives parents or students a tax break on saving money for school. The number 529 is reflective of the section of the Internal Revenue Service (IRS) tax code that relates to the program. Some programs are pre-paid tuition plans, while others are advanced savings plans. The federal government has a plan available for any eligible US taxpayer. It also requires every state to offer at least two choices. When choosing a particular state's plan, students are not required to live in that state or attend school in that state. They are only required to follow the guidelines of the plan in order to reap the benefits of tax-free money. In some cases, there may be a market return on the money that is invested.
Sponsor Programs
Similar to 529 plans, these programs offer students and their parents or guardians an option to set aside money for college. With the money, students can open a 529 account in their state of choice, create a high-yield savings account with a financial lending institution or request a payout to contribute towards tuition and other college expenses. Depending on the type of sponsorship program, parents may opt to take control over the money until the student has graduated from school and assist the child in spending it on college expenses. Money can be contributed to these types of programs when the student's account is designated in a sales transaction. For example, if the student buys a pair of shoes at a sponsoring merchant, a percentage of that sale will go directly into the student's savings plan account, rather than to the merchant. Activity from certain credit cards may be linked to this account as well. Some merchants offer special discounts on certain products instead of or in addition to savings plans. There are restrictions on when and how the money can be withdrawn, but not necessarily on how it must be used.
Student Loans
Private savings accounts are another way to pay for school. Some financial institutions offer special interest rate percentages on savings plans; however, it is usually restricted by how often the money can be withdrawn. A certain amount of time must elapse before the money can be withdrawn without penalty. Additionally, the account may not be eligible for the 529 tax deferment.
529 Plans
A 529 college savings plan is a program endorsed by the federal government that gives parents or students a tax break on saving money for school. The number 529 is reflective of the section of the Internal Revenue Service (IRS) tax code that relates to the program. Some programs are pre-paid tuition plans, while others are advanced savings plans. The federal government has a plan available for any eligible US taxpayer. It also requires every state to offer at least two choices. When choosing a particular state's plan, students are not required to live in that state or attend school in that state. They are only required to follow the guidelines of the plan in order to reap the benefits of tax-free money. In some cases, there may be a market return on the money that is invested.
Sponsor Programs
Similar to 529 plans, these programs offer students and their parents or guardians an option to set aside money for college. With the money, students can open a 529 account in their state of choice, create a high-yield savings account with a financial lending institution or request a payout to contribute towards tuition and other college expenses. Depending on the type of sponsorship program, parents may opt to take control over the money until the student has graduated from school and assist the child in spending it on college expenses. Money can be contributed to these types of programs when the student's account is designated in a sales transaction. For example, if the student buys a pair of shoes at a sponsoring merchant, a percentage of that sale will go directly into the student's savings plan account, rather than to the merchant. Activity from certain credit cards may be linked to this account as well. Some merchants offer special discounts on certain products instead of or in addition to savings plans. There are restrictions on when and how the money can be withdrawn, but not necessarily on how it must be used.
Student Loans
Private savings accounts are another way to pay for school. Some financial institutions offer special interest rate percentages on savings plans; however, it is usually restricted by how often the money can be withdrawn. A certain amount of time must elapse before the money can be withdrawn without penalty. Additionally, the account may not be eligible for the 529 tax deferment.
