May 29 is National 529 College Savings Plan Day.
This week my son, Aiden, graduates from 8th grade. In August he will be a freshman in high school. I just had a real, “reality bites” moment slap me in the face. College is just a little over 4 years away. Have we saved enough? Obligatory parental worry sets in and now I’m thinking about the rise of college expenses and the rise of student loan debt. Yikes! It’s overwhelming!
Wait a second. I tell my brain to slow the worry train down. It’s going to be ok. We’re saving for college in his 529 savings plan. What is a 529 College Savings Plan? A 529 savings plan is a tax-advantage investment plan designed to encourage saving for future education expenses for a designated beneficiary. It’s named after Section 529 of the IRS code which created these types of college savings plans in 1996.
When Aiden was 4 years old, just before starting pre-K, my husband and I made the decision to shift the difference in money we were previously spending on daycare, to saving for what we knew would be one of our biggest future financial expenditures, dun-dun-duuuuun… college. We opened a 529 Savings Plan and set up monthly contributions from our checking account each month. Saving for college, saving for anything for that matter, is so much easier when it’s automatic and you don’t have to think about it. And I like to think of it this way, every dollar we save is a dollar he won’t need to borrow in the future. We encourage his grandparents and family friends to make contributions to his 529 instead of buying expensive birthday or holiday gifts. As the owner of the 529 savings plan, I maintain discretion over the account and over the beneficiary. I can change the plan beneficiary to another child if I choose or use it for educational expenses for myself. And in a little over 4 years, when it comes time for his expenditures, qualified withdrawals will be tax free.
Anyone can contribute to a 529 plan. While contributions to a 529 savings plan are not deductible, the earnings in a 529 plan grow federal income tax-free and are not taxed when money is taken out for qualified expenses. 529 plan savings can be used to pay for qualified expenses at almost all private or public college, university, technical or vocational school in the U.S. or abroad. Qualified expenses include tuition, fees, books, supplies, computers and equipment required for the enrollment or attendance of the beneficiary. You can even fund K – 12 tuition (up to $10,000 a year) from your 529 savings.
College is one of a family’s biggest expenses after buying a home and saving for retirement. Start early. Don’t wait when it comes to your child’s future.
If you have questions or want more information on how you can set up a 529 College Savings Plan for your child (or grandchild) please call us. We’d love to talk more about how to get your college savings on track!
Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.
Rules and laws governing 529 plans are varied and subject to change. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.
