This post contains affiliate links. As an Amazon Associate I may earn from qualifying purchases at no additional costs to you. Please see the Policies pages for more info.
What is a 529 college savings plan? If you are a parent wondering how you’re going to pay for your child’s college education then you will want to know how a 529 plan can help you.
With rising costs of college tuition, education could be a major cost to families, especially if you have multiple children. The best way to help with those costs is to open a 529 college savings plan. In this post I will break down what it is, the tax benefits and how you can open one today to help save for your child’s future.
What is a 529 college savings plan?
A 529 savings plan is an investment account that can be used for future educational expenses such as tuition, books, and room and board. Most states have their own 529 plan which are overseen by the state’s treasury department.
What are the tax benefits?
Money in a 529 savings account grows tax free, meaning interest earned will not be taxed. Also eligible withdrawals or education expenses will not be taxed.
Your specific state may also have additional tax benefits depending on the amount you contribute each year. Check with your tax accountant for specifics.
Who can open a 529 savings plan?
Anyone that is saving for educational expenses can open an account. In most cases parents are the owners of the accounts and can list children’s names as the beneficiary. Grandparents can also open accounts for their grandchildren. Adults can also open accounts for their own educational expenses.
When should I start investing in a 529?
This is a 2 part answer. You should start investing as early as possible but not until you’re on baby step 5.
I say early as possible because when it comes to investing the earlier the better. You’re using interest to your advantage and the more time your money has to grow the more money you will earn with interest!
Here’s the but…
There are other important financial goals you should focus on first before putting money into a 529.
Hence Baby Step 5…
In the 7 baby steps to financial peace, saving for kids’ college is baby step 5. You will want to have a fully funded emergency fund, be completely debt free (except a mortgage) and have 15% of your income going into retirement before you start saving for college.
Why is a 529 better than a general savings account?
A 529 account is an investment account that has a higher rate of return than general savings accounts. You will earn more interest in a 529, therefore your money will grow faster.
That being said, since it’s an investment account it will fluctuate with the market.
Who can contribute to a 529 college savings plan?
Anyone can contribute to your 529 account! This is great because even if you aren’t ready to contribute yourself, you can still open accounts for your children and ask family for support.
It gives family members the opportunity to support your child’s future during special occasions like birthdays and Christmas.
Contributing is easy with Ugift. When you create your 529 account, each child will receive a special code that family members can use to send funds electronically or by mail through Ugift. It’s a free service that makes it easy for family members to contribute to 529 accounts. They can even set up a Gift Giver profile which saves their banking information.
How do I open a 529 account?
To open a 529 savings account, look up the website that is for your state (New York State 529).
To sign up online you will need the following information available:
- Your birthdate and Social Security Number
- Birthdays of the beneficiaries that you are opening the account for
- Social Security Numbers for the beneficiaries that you are opening the account for.
Once you have your personal information set up, you can choose your investment options.
I am not going to go into too much detail about investment options since I am not a Financial Advisor. If you have questions, ask a Financial Advisor.
From experience though, the NY 529 savings plan gave us 3 age based investment options:
- Stock Portfolios – more aggressive option with stocks only
- Balanced Portfolios – stocks and bonds
- Bonds and short-term reserves – More conservative
The investment option you choose depends on your investment strategy. If you’re not sure what your strategy is, you can read more on What type of investor are you?
Remember, you aren’t locked into any investment. You can change it later based on your needs.
Conclusion
This should have answered your most common questions about 529 college savings plans. They are simple to open and one of the easiest ways you can start savings for educational expenses and avoid going into debt over student loans
Do you have a 529 account or plan to open one?
