Page 46 - The Magazine of AAA Ohio Auto Club – November 2020

Tax Advantages of IRA and 529 Plans
When it comes to retirement savings strategies,
there are plenty. Plans vary from person to person and can change depending on a broad array of things. Some people want to save for a comfortable retirement. Others may be keeping the futures of their family in mind. Regardless of your plan, it’s never too early
to start thinking about your savings. The following advantages regard individual retirement accounts
and 529 college savings accounts.
An IRA has many advantages:
• IRAs allow you to invest in traditional financial assets like stocks, bonds, exchange-traded funds, and mutual funds, potentially giving you a more comprehensive range of investment choices than your employer-sponsored plan might provide.
• Earnings you accumulate in your IRA account are fully tax-deferred until withdrawn, which means your account’s money will grow more than it would in a taxable investment.
• You can delay withdrawing money from the account, giving more time for the funds to grow.
• IRAs allow you to roll other funds into it. So, if you leave a job, you can move money from your employer-sponsored plan into your IRA account.
Photo: iStock/ GlobalStock
A 529 plan can be a great way to pay for future education expenses of children or grandchildren: • A 529 plan has high maximum contribution limits
and no annual limits on the number of contributions
you can make.
• These plans provide federal tax-free growth and
tax-free withdrawals for qualified education expenses like college tuition and fees, books, room and board, etc.
• Some states offer a tax credit or deduction for contributions to the 529 plan.
• Less impact on financial aid eligibility. A lower percentage of assets in a parent-owned 529 are factored in, resulting in better eligibility for grants, work-study programs and loans.
• The flexibility of these plans means if a beneficiary has earned their undergraduate degree, the remaining funds can be used toward graduate, trade or vocational programs. They also can be reassigned
to any direct relative (nieces, nephews, cousins, etc.) of the plan owner.
Whatever you’re planning for, it’s always wise to explore all of your investment options to ensure you’re building a plan that’s right for you.
44 | AAA MAGAZINE
Photo: iStock/ michaeljung