![]() If your 529 is used to pay for qualified education expenses, no federal income taxes are owed on the distributions, including any potential earnings. Another factor to consider is the short horizon for investing when starting to save for the child at age 5 or 10 versus starting when they're born. (2) monthly contributions from the account owner of $166.66, and monthly gifted amount of $41.66 to a 529 account made on the first of each month beginning when the child is age 10 and continuing through age 18, (3) annual rate of return of 3.3%, compounded monthly, and (4) no taxes on any potential earnings within the 529 College Savings Plan account.ĭifferences in the assumed rate of return across the 3 scenarios are due to the fact that target date fund investments tend to become more conservative and focused on capital preservation as opposed to growth the closer the account beneficiary approaches college age and needs these savings to cover qualified education expenses. ![]() Scenario 3: (1) monthly contributions to a 529 account from the account owner of $166.66 only, made on the first of each month beginning when the child is age 10 and continuing through age 18. (2) monthly contributions from the account owner of $166.66, and monthly gifted amount of $41.66 to a 529 account made on the first of each month beginning when the child is age 5 and continuing through age 18, (3) annual rate of return of 5.3%, compounded monthly, and (4) no taxes on any potential earnings within the 529 College Savings Plan account. ![]() Scenario 2: (1) monthly contributions to a 529 account from the account owner of $166.66 only, made on the first of each month beginning when the child is age 5 and continuing through age 18. (2) monthly contributions from the account owner of $166.66, and monthly gifted amount of $41.66 to a 529 account made on the first of each month beginning when the child is born and continuing through age 18, (3) annual rate of return of 7.5%, compounded monthly, and (4) no taxes on any potential earnings within the 529 College Savings Plan account. Scenario 1: (1) monthly contributions to a 529 account from the account owner of $166.66 only, made on the first of each month beginning when the child is born and continuing through age 18. This hypothetical example assumes the following:
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