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What if you had a way to plan for your child’s future education needs, no matter what type of education they decide to pursue? That’s where a 529 savings plan can help you prepare for the cost of higher education—and save money while you’re doing it.
How does a 529 plan work?
The 529 plan works much like a Roth 401(k) or Roth IRA, by investing your after-tax savings contributions in mutual funds or similar investments. As those investments grow, so does your 529 savings account. When the time comes distribute the earnings that your account has created, you won’t be charged a federal tax on earnings that are spent on qualified higher education expenses, such as tuition or books.
What makes a 529 plan different from other college savings plans?
The 529 plan can be used for an incredible variety of educational opportunities, like elite private colleges, state flagship universities, local community colleges, theological seminaries, trade schools offering culinary or beauty skills training, truck driving schools, and even international schools. In short: your child isn’t locked into a specific educational path from a young age.
The 529 plan has other advantages too. With very few exceptions, you maintain control of the account even after the beneficiary (your child or family member) turns 18. In other words, if they get other ideas about what to do with the money… they’re out of luck without your permission. You aren’t locked into a beneficiary, either. You can change the beneficiary to another family member or use the money to further your own adult education.
You’re also not restricted to the 529 plans offered in your state—you have access to every 529 plan in every state, which often differ on the types of plans they offer. For instance, some states give you the ability to prepay for tuition at qualified institutions—essentially locking in tuition prices at their current level. Think about how much the cost of college has skyrocketed over the last 18 years, and you can start to see why these plans can save a lot of money down the road.
Start saving for tomorrow, today!
Need a little more motivation to get started? Managing a 529 plan is incredibly easy. Once you’ve selected a plan that works best for you, you can set up regular, automatic deposits into the account, so you don’t even have to think about it unless you want to make a change.
Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
