Ds Scholarship

Don’t oversave in this college savings account

Practical tips to brighten your financial future.

Easier said than done, but The smart move is not to overfund 529 plans for your kids.

529 plans are tax-advantaged investment accounts designed to cover college expenses. Similar to Roth retirement account deposits, the money you contribute is taxed at 529 up front. Contributions and earnings will not be taxed when withdrawn to cover eligible education expenses, such as tuition, room and board, laptop, and that copy of infinite…even if it was only used as a coaster. In addition, you can use up to $10,000 annually on education expenses from kindergarten through high school, and you can also spend up to $10,000 to pay off student loans.

Perhaps the plan’s biggest drawback is that it can only be used for qualified education expenses. To withdraw any money in the account that you don’t end up using for eligible education expenses, you’ll owe a 10% penalty and income taxes on earnings (your initial contributions are not taxable).

  • Keep in mind that you can withdraw the amount of your tax-exempt student scholarship or grant and use it for any purpose, without penalty. Income taxes will still apply, so it’s as if you’ve kept the money in a taxable brokerage account.
  • Here are some ideas for what to do with a 529 plan if the recipient hasn’t finished going to college.

The fix is ​​to save some of your college money elsewhere, such as a taxable brokerage account. Some people save in college under a permanent life insurance policy, an account type that generally allows you to withdraw premiums without taxes and penalties.

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