Saving for College with 529 Plans
Looking to save for college? Take a number – the number 529 to be exact.
College Savings Accounts, or 529s as they’re nicknamed (after the IRS tax code), have become all the rage in recent years. So what are they? And what options do you have when using a 529 to save for your child’s college education?
529 Plans come in two major forms. The first is a prepaid 529 tuition program. This option allows you to pay any amount of future college costs at today’s current tuition rate. With rising college costs, this plan may fit you best.
The other type of 529 is the state college savings plan. Every state in the U.S.has a college savings plan, which allows you to put money into a private savings account. The account is managed by a state-approved financial institution and comes with a variety of investment options. Each month you can add money to your account, even directly from your paycheck if you wish. Certain plans have certain limits do the amount you can contribute but the account allows tax deferred growth and in some states you can even receive a tax break for using the accounts.
529s allow you to take out an account in your name and then name a beneficiary to the account, the beneficiary will eventually receive the money for a post-secondary education. Another added convenience is that you can always change the person’s name who receives the benefit in case one of your children decides not to attend college.
Different states have different plans and options and each option offers you choices. Some funds are filled with a variety of mutual funds that are actively managed. Others are more diversified in their investments and are not as actively managed or traded.
Both types of 529s come with pros and cons depending on your financial aid needs and how much you wish to invest. Whenever making major financial decisions, it’s best to contact your financial planner to figure out what best fits your needs.