Earnings grow tax-deferred
The difference between tax-free growth and taxable growth (in other investments) can be significant. In the hypothetical chart below, one parent opens a tax-deferred 529 account and a second parent opens an account with taxable earnings. Both make an initial contribution of $2,500 and contribute $100 every month for 18 years (with a 5% rate of return). When their children are ready for college at age 18, the tax-deferred account has over $6,300 more than the same investment in a taxable account.
The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
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