Among the most popular education accounts are the Section 529 college savings plans, which take their name from Section 529 of the U.S. tax code. It allows parents, grandparents other relatives, and friends to open an account and invest in a variety of stock and fixed-income accounts on behalf of a beneficiary. Savings grow tax free, and contributions and any earnings used to pay for qualified higher education expenses are federal and California income tax-free. Each state has its own plan. For California, check out ScholarShare, California's 529 College Savings Plan. California state residency is not required. However, investors residing outside of California should consider their own state's plan first as it may have tax advantages that are only available through that state's plan.
When paying tuition and other related expenses, you be eligible for certain tax benefits associated with education-related expenses.
There are currently two tax credits available to help you offset the costs of higher education by reducing the amount of your income tax: the Hope credit and the lifetime learning credit.
If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year.