As a parent, proper financial planning is likely a priority. For that reason, many advisors recommend setting up a 529 college savings plan to help pay for your child’s educational future. This type of investment account works much like a 401(k), offering several benefits in exchange for contributions.

3 Reasons to Include 529 Plans in Your Financial Planning

1. Grow Savings Tax-Free

529 accounts accrue interest over time. This interest is also free from being taxed. Therefore, any growth you experience in the account from the time you open it to the time you start spending the funds is considered non-taxable income. In Texas, there is no maximum limit on contributions.

Additionally, if you ever decide to sell the investments to pay for your child’s tuition, you won’t need to pay federal income taxes.

2. Deduct Contributions During Tax Time

Any financial planning expert will tell you that the more deductions you can claim during tax time, the better. Luckily, in most cases, any contributions you make toward your child’s 529 plan can be considered a deduction. Although these can’t be claimed when filing federal taxes, depending on where you live, you can claim those contributions on your state taxes.

3. Choose a Plan From Anywhere in the Country

Depending on where you live, it might be more financially advantageous to select a 529 plan outside your state. For example, if you live in North Carolina or California, you won’t be able to claim any contributions toward your plan. In this case, shopping elsewhere can be beneficial for taxes.

If you need financial planning assistance to put together a 529 account for your child, turn to Christina Mendoza & Associates LLC Insurance and Financial Services in Bexar County, TX. With over a decade of experience, they have the insight and knowledge needed to ensure solid financial health. Visit their website for more information on their offerings. Call (210) 389-5289 to schedule a consultation.