529 Plan for College Savings: A Complete Guide

529 Plan for College Savings: A Complete Guide

They are perhaps one of the best options available to anyone looking to save up for college fees as they not only allow you to earn as an investment, but you also get the benefit of tax exclusions for educational expenses and even tax deductions, all the while having full control of your money which you can touch at any time.

529 Plan

We all know how expensive college tuition fees are right now.

If you want your kid to actually attend a decent college or university, you either have to save up like crazy or get a loan where you can end up in huge debt down the line.

So if you don’t want to get caught with your pants down your legs, you’ll really want to come up with some sort of savings or investments so that you will have enough money to send your kid to college without having to worry about costs.

So what can you do? If you want to make sure you are saving and making a great investment for the future, then you will want to consider a 529 college savings plan.

It’s a decision that you won’t regret. But what exactly is it?

What Is a 529 Plan?

529 Plan

The 529 college savings plan is a form of tax-free savings and investment plan that is typically state-sponsored.

As long as expenses are being used for qualified educational institutions then it won’t be subject to taxes.

It’s a great way to save for college tuition that even acts as an investment plan so you can make the money work for you and allow it to grow.

If you start it early as well, the investment value can grow which could cover college tuition and then some.

Now, all states offer at least one 529 plan with some offering more than that.

You aren’t required to invest in your state’s 529 plan and you can invest out-of-state but most offer tax deductions and benefits if you decide to invest in-state.

The great thing about these plans as they don’t have control over where your child goes to school.

As long as it’s a qualified educational institution, you can use the funds the way you want.

Now, if you can’t find a good enough plan in your state, you can do a bit of shopping around so that you can find the best 529 plans available for you.

There are two types of plans which we will begin to explore so you can have a better grasp of what can work for you. 

Kinds of Plans

There are two types of 529 plans available. And we’re going to explain each.

Regular college savings plan

These are the most common types.

These kinds of investments can grow without being taxed.

What’s more, it can be withdrawn any time tax-free as well for any educational expenses like tuition, room and board, and even textbooks required for your kids’ education.

It’s the perfect plan for long-term growth to be used for a college education.

Prepaid plans

On the other hand, there are prepaid plans.

These plans allow you to pay partially or entirely the tuition for an in-state college institution for the future but at today’s rate.

Basically, you are locking the rate for future use.

Currently, there are 10 states that have prepaid plans right now that include Florida, Illinois, Maryland, Massachusetts, Michigan, Nevada, Pennsylvania, Texas, Virginia, and Washington.

What Makes 529 College Saving Plans Different From Other Investments?

529 Plan

There are tons of investments available to the average user.

These investments can yield a good profit for most but do require a ton of money to get started.

Not to mention that you cannot touch the funds while an investment is ongoing. Once you withdraw the funds, that’s it.

A 529 plan, however, is different.

For one, they are designed specifically with education in mind. While originally created for college, most of these plans also include usage for educational institutions from K-12.

Another great thing about 529 college savings plans compared to other investment plans or even other college savings plans is that you remain in complete control of your funds.

That means if there is a need, you can easily withdraw the funds at any time (though this may mean taxes and other penalties may apply if it’s not used for an educational purpose).

This gives you full control and access to do whatever you want with the savings plan.

Of course, we recommend that you keep the money in there until you need to actually use it. 

Set Contribution Limits Do Not Exist

529 Plan

In many savings and investment plans, the Internal Revenue Service or the IRS gets to set limits on your contributions made into the plan.

This is different from 529 college plans.

There are no set limits so you can put in as little or as much as you want.

However, one should be careful that their contributions are larger than the gift tax exclusion (which is $15,000 in 2020) for any beneficiary per tax year.

Those most people will probably not need to contribute that much to meet their saving goals.

Other Considerations

There are many 529 plans available to choose from.

While going through the best 529 plans available, you should consider first to look for one that is available in your state.

Generally speaking, those plans will give you the most benefits in terms of savings and tax deductions to its state residents.

However, do not limit yourself to the ones available in the state especially if the terms do not fit what you need.

Unless you are going for a prepaid plan, going out of state for a state-sponsored plan is quite fine.

Another thing you should consider is to look for direct-sold plans.

These plans are sold directly by the state government to individual consumers rather than going through a third-party financial advisor.

They generally carry lower fees for investors and are overall better for the consumer.

529 Plan

Final Thoughts

There are many investment plans and savings plans available today.

It can even feel overwhelming just by the number of choices out there.

This is even true when considering a savings plan for college tuition.

As we all know that college tuition can be one of the largest expenses one may encounter, you will want to be prepared.

What’s amazing is that 529 plans make it easy for you.

They are perhaps one of the best options available to anyone looking to save up for college fees as they not only allow you to earn as an investment, but you also get the benefit of tax exclusions for educational expenses and even tax deductions, all the while having full control of your money which you can touch at any time.

With a bit of research, you can get started right away and you will be well on your way in securing a future for your kid while they are still young.

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Author: maharot22

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