State of California 529 College saving plan?

Answer 1

Yes, I'm sure CA does have a 529 college savings plan, but that may not be the best way to "invest" for your child's (or grand-child's) future.

The problem I have with 529's is that the money has to be used for education or you pay penalties (taxes and such). We're using Roth IRA's to do this. If something happens and the kids don't need all the money, we can still use it for our retirement.

Answer 2

A 529 college savings plan is an investment account that you fund with after tax dollars. The earnings grow tax free, and aren't taxed upon withdrawal if they are used to pay your daughter's educational expenses. If you withdraw funds for any other purpose, you'll pay federal and state income taxes on the earnings withdrawn, plus a 10% penalty. You can set one up as soon as your daughter has a Social Security number (which can usually be about 2 months after she is born--make sure the hospital sends in an application for her to get a Social Security number). The annual contributions are the gift tax limits--$12,000 per donor or $24,000 for a married couple. Anyone can contribute to your daughter's 529 plan. If you or another donor contributes more than $12,000 per year, the donor will probably have to make a gift tax filing with the IRS (consult with your tax adviser about this). Utah has just about the lowest cost 529 plan. But if your home state has an inexpensive plan and gives you tax deductions for contributions, your net cost may be lower if you open an account with your home state. Run the numbers to see if this is true. Pay close attention to the costs of the plan. Expenses can eat up a lot of your investment gains over the years.