There are several options in 529 plans available in Arizona, and among the biggest advantages of this type of savings plan is the fact that families can invest into these accounts without earnings being taxed–provided that the funds are used to pay for college expenses. Additionally, parents, aunts, uncles, cousins, grandparents, family friends, and anyone else can contribute into the account, and the earnings still remain free from federal and state taxes–they are a way for an entire family to come together and help a child pay for college expenses.
The most popular 529 plans in Arizona work similar to 401k retirement plans in those contributions are invested in stocks, money market funds, and bonds. And provided that the money is eventually used at an accredited college or university on qualified education expenses like tuition, room and board, books, and fees, your earnings won’t be subject to federal taxes.
529 Plans and Financial Aid
One of the biggest concerns many parents have about opening an account like a 529 plan is how these types of investments will affect their child’s future financial aid prospects. It’s important to note that the effect on eligibility won’t be as negative as it first seems.
Keep in mind that investments held by parents are considered at a maximum of 5.6% when determining what is considered the “Expected Family Contribution” portion of financial aid. That means that a 529 account with a balance of $25,000 at the time of a child applying for college, held under a parent’s name, will only increase your child’s expected family contribution by slightly more than $1,000. And accounts owned by grandparents, aunts, uncles, or other family members aren’t even considered at all.
In short, considering a 529 plan is a smart way to begin stashing away money for your child’s future education–and one that not enough families are taking full advantage of. Talk to your local banking institution about your options in college savings plans.