Paying for college with the 529 college savings plan may be one of the best ways to help you save money for your children’s education. There are many different types of 529 plans and most states offer their own version. Generally though, most have very similar characteristics when it comes to the basics and are an important tool to use for college tuition.
Have parents missed out if they don’t save for their kid’s education?
It is important to remember that most people use several different ways to pay for college. Saving in a 529 plan is just one of the many ways that include student loans, parent loans, scholarships, grants and even paying from current income. In fact, only about 12% of college tuition last year was funded by 529 plans. Saving for college education has to be part of any person’s overall financial planning.
What is the biggest advantage of the 529 plan?
The two fold tax savings that comes with the 529 plans are the biggest. First, you could get a tax break for making annual contributions up to $5,000 and the second tax advantage is all earnings grow tax free if used for college expenses and now even private school education expenses. Plus, 529 plans have little impact your child’s ability to receive financial aid.
Are 529 plans difficult to set up?
They are actually fairly easy to establish using online tools. And 529 accounts can be started with as little $10 and additional contributions can be as low as $10 per month. Most plans offer an age based portfolio so you typically don’t have to make any investment choices. An added benefit is that you can change the beneficiary if you don’t need all the funds in a particular child’s account.
Does it have to be parents that setup and contribute to the plan?
Actually, anyone can setup a 529 plan for a child and also several people can contribute to a 529 plan. So grandparents, aunts, uncles and friends can contribute to the 529 plan. That is what makes these plans a special tool if others want to be involved in helping pay for college. This is also might be a way for those contributing to avoid any possible tax issues.
Is it ever too late to start a 529 plan?
Even if your child is starting college in the fall, you might want to consider a 529 plan to receive tax benefits. You can continue to make contributions even while they are in college. It is important to understand the tax rules and your situation to make sure it is still beneficial for you. Until they graduate, it might not ever be too late to use the 529 plan.