college costs (some states allow upward of $300,000 per student). After you
contribute to one of these state-based accounts, the invested funds grow
without taxation. Withdrawals are also tax free so long as the funds are used
to pay for qualifying higher educational costs (which include college, graduate school, and certain additional expenses of special-needs students). The
schools need not be in the same state as the state administering the Section
529 plan.
As I discuss in the previous section dealing with Education Savings Accounts,
Section 529 plan balances can harm your child’s financial aid chances. Thus,
such accounts make the most sense for affluent families who are sure that
they won’t qualify for any type of financial aid. If you do opt for an ESA and
intend to apply for financial aid, you should be the owner of the accounts (not
your child) to maximize qualifying for financial aid.
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