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529 Plan Growth Formula:
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A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. These plans, legally known as "qualified tuition plans," are sponsored by states, state agencies, or educational institutions.
The calculator uses the future value of annuity formula:
Where:
Explanation: This formula calculates the future value of a series of equal monthly contributions earning compound interest over time.
Details: Accurate future value calculations help families plan for education expenses, understand the power of compound growth, and make informed decisions about contribution amounts and investment timelines.
Tips: Enter monthly contribution in dollars, annual interest rate as a percentage, and investment period in months. All values must be positive numbers.
Q1: What are the tax advantages of 529 plans?
A: Earnings grow federal tax-free and withdrawals are tax-free when used for qualified education expenses. Many states also offer tax deductions for contributions.
Q2: What can 529 plan funds be used for?
A: Qualified expenses include tuition, fees, room and board, books, supplies, and equipment required for enrollment at eligible educational institutions.
Q3: Are there contribution limits?
A: Yes, most states have contribution limits that typically range from $235,000 to $529,000 per beneficiary, depending on the state.
Q4: What happens if the funds aren't used for education?
A: Non-qualified withdrawals are subject to income tax and a 10% penalty on earnings. However, funds can be transferred to another family member.
Q5: Can 529 plans be used for K-12 education?
A: Yes, up to $10,000 per year per beneficiary can be used for K-12 tuition expenses at public, private, or religious schools.