529 California

The funds allocated under the 529 college plans can be utilized by the beneficiaries for qualified education purposes such as paying tuition fees, buying books, equipment, or room and board.

In the state of California, the beneficiaries of California's 529 saving plan are given income tax free treatment for their college funds spent on most accredited universities and colleges, technical schools, and eligible universities in foreign land.

Many Tax Benefits Under section 529 of the Internal Revenue Code, the laws of federal taxes provide special income tax benefits to the participants or account holders, if some basic requirements are fulfilled. Thus by raising 529 college savings funds for your child, you are not only building a secured future for him/her but are also earning tax free interest on your income.

Tax Free Contribution Up To $10,000 Since anybody contributing to this fund can enjoy the tax benefits, grandparents, relatives and friends can readily contribute up to $10,000 a year for the child's education. People contributing up to this limit are exempt from all tax filings.

Better Than Coverdell Education Savings Accounts The 529 plan has flexibility and many options to save money from tax. In case of an unqualified withdrawal from the saving fund, the percentage of tax incurred upon the saved amount is low and you get back a good sum of money.

Though a minimum tax is levied on the total amount after maturity, it depends on the state program whether it will be taxed or not. In California, this tax is exempted as a goodwill factor for meeting the other expenses of the beneficiary's education.

Easy Withdrawal If the student doesn't opt for higher studies, the parent or the contributor has the sole right to withdraw the amount for his personal or other use. They can also transfer the amount to other family members. The amount withdrawn is generally taxed, but the benefit one gets is that the tax imposed on it is very low. It is either 8 % or 10 % on the total amount withdrawn.

Qualified withdrawals do not attract any tax liability however.

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