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Advantages of a '529' college savings program

Posted 10/7/22
What can be better than lowering your taxes? With a 529 plan, you have no federal tax obligation once your money's invested in your account. But the best part is that your earnings grow federal-tax-deferred, and qualified withdrawals are tax-free. In some states, other tax benefits exist as well.

• Deduction. For example, in New York up to $10,000 is deductible from state taxable income for married couples filing jointly; single taxpayers can deduct up to $5,000 annually. (This may be subject to recapture in certain circumstances such as rollovers to another state's 529 plan or non-qualified withdrawals).

• Compounding. The tax breaks you get from a 529 plan could translate into an increase in your plan assets because of compounding. The money you don't have to pay taxes stays in your account and potentially can generate even more earnings. The earlier you start saving for college, the more years you have to make compounding work for you.

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