Californians are offered a financial incentive to start saving money for their children’s higher education through a state-sponsored savings plan.
ScholarShare 529 launched new grants are offered to low-and moderate-income households that will provide up to $200 in matching contributions, plus $25 for new sign-ups.
This program is for California residents to save for educational endeavors after high schools, such as graduate school, community college, trade school, and apprenticeship programs. Plan enrollees must be at least 18 years old and have a Social Security (SSN) or Taxpayer Identification Number (TIN) to set up an account, which takes about 15 minutes to open.
Beneficiaries must have an SSN or TIN. An account can be set up for personal use and anyone else, even if they are not related. However, each account can benefit only one person at a time.
Various investment strategies can be selected that range from funds with low risk and low growth, funds that spread money across a diverse range of holdings, funds that focus on one type of holding, and funds that gradually reduce risk as a child gets older.
The Internal Revenue Service calls this a 529 plan or a state-sponsored savings plan that offers tax breaks under Section 529 of the Internal Revenue Code. ScholarShare 529 offers unsurpassed income tax benefits. Although contributions are not deductible on your federal tax return, any investment earnings can grow tax-deferred.
Withdraws from the account can be made without taxes or penalty if spent on qualified expenses such as tuition, room, or school supplies. Non-qualified expenses will be taxed, and a 10 percent penalty will be applied, along with a 2.5 percent California tax.
California does not allow up to $10,000 annually in tax- and penalty-free withdrawals for elementary, middle, and high school tuition, although it is accepted by federal law. A 2.5 percent penalty in addition to the taxes will be applied if used for those purposes.