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.
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 will 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. 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 a 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 the account.
Is it ever too late to start a 529 plan?
Even if you child is starting college in the fall, you might want to consider a 529 plan to receive tax benefits and to 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.
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.
Are all 529 plans the same?
There are differences to the many different 529 plans that are available. Most states have their own plans, Indiana is called the CollegeChoice and offers three different options. You don’t have use your State’s plan but it very likely will erase any tax benefit if you don’t use the plan in the state you reside.