College is expensive. Education Savings Funds, often referred to as qualified tuition plans, can be an ideal way to save money in advance for educational expenses. These funds allow the saver to open an investment account and save for the beneficiary’s future educational expenses which can include tuition, room, board, books and other supplies. These funds may possibly also be used at theological seminaries, trade schools, and local two-year community colleges, in addition to universities.
Private school tuition is expensive. Although most consumers think of Heritage Education Funds as college savings plans, this is not strictly the case. Many of these funds may also be used toward tuition at public, private and religious elementary and secondary schools. Be sure to research the fund however if its intended use is for distribution to elementary tuition, as not all funds allow this type distribution.
Once the decision has been made to open an education fund, one must decide which type of savings plan is the best fit for your beneficiary’s needs. The primary advantage of most of these Heritage RESP funds is the tax advantage. After tax dollars are used, but the fund then grows tax-free with tax free accrued interest. Distributions from educational savings funds are also tax-free, providing they are used for qualified educational expenses. Differences in the type funds you must choose between include the annual allowed contribution amounts, flexible or stricter investment choices, aggressive or conservative investing and distribution restrictions.
Paying for a plan takes planning! Most funds allow and even encourage automatic drafts so you may contribute on a regular basis. Many plans allow other adults, including grandparents, step parents, other relatives and even friends to contribute. Giving the gift of education is a great way to utilize those cash birthday and graduation gifts effectively.
One may wonder what would happen in the case that a fund is not used. The beneficiary can be changed on many plans. In this way, should the beneficiary not need the funds, they can be transferred to other siblings, spouses, niece or nephew. Even in-laws can benefit if so desired. Should the funds not be required for any educational expense at all, then similar to a retirement fund, federal income tax and a penalty would be charged to withdraw the funds. However this penalty and tax may be waived if the reason the fund was not used for educational purposes was if the beneficiary received a full scholarship, and thus had no educational use for the RESP funds.
Education Savings Funds may conceivably be portable and for use where they are needed, even in other areas of the country and often across international borders. When considering any type of savings plan for educational purposes, research, ask questions, consider all your needs and options and always consult a professional.