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Section 529 Savings Plans

Article provided by ScholarshipExperts.com

Some of the hottest investments plans available right now are the 529 college-savings plans, made popular through the 2001 tax act. There are both state-sponsored and national plans. Employers are also offering 529 plans to employees, but these employer-sponsored plans may lack the state tax break.

Simply put, anyone can contribute money on behalf of a beneficiary (i.e. future college student). The contributions are invested according to options directed by the state. Maximum contributions are $305,000; when successfully invested and withdrawn tax-free (when used for higher education), these plans are especially appealing to the affluent Americans who can fund them. Unfortunately the volatility of the stock market in the past two years has caused many investments to decrease.

Experts place the current assets at $18 billion but say this may rise as high as $150 billion in four years. With this much money, there are bound to be financial advisors eager to exploit the potential. One problem, for example, stems from the fact that the 529 plans are considered municipal securities that are not governed by the Securities and Exchange Commission. Thus, the lack of advertising guidelines has allowed financial firms to market the 529 plans they administer without disclosures about performance, cost, or risk.

There are of course some safeguards to prevent abuse. Withdrawals are reported on 1099 forms and there is still a significant impact for over-gifting into these plans.

The bottom line is to pay attention and be educated before choosing a 529 plan to invest in. Know what you're getting and with whom you're doing business. After all, it pays to be educated!

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