Begining College Planning with the 529
What is a 529 Plan?
529 plans, named for the section of the tax code that allows it, is a college savings plan designed to be invested in over the lifetime of the child you are planning to send to college. 529 plans are a useful tool to beginning college planning and can be used to plan for qualifying expenses for colleges nationwide. There are a great deal of plans available sponsored by all 50 states and some private companies. There are two options to pay into a 529 plan, a prepaid plan or a savings plan. Both can be very beneficial if used correctly and with due diligence.
Types of 529 Plans
There are two types of 529 plans:
- Pre-Paid Plan
- A pre-paid plan, true to its name, is a plan that allows you to "pre-pay" part of, or all of, qualifying expenses. This can be an ideal plan if your child is close to college age or if you have enough money to be put aside to pay for the expenses.
- Savings Plan
- The Savings Plan option works just like a retirement plan (i.e 401K or IRA) in that you invest money over time in instruments like mutual funds and other similar instruments. There are usually multiple options offered within the plan.
Choosing a 529 Plan
Finding 529 plans are as easy as going online and doing a little research. There are many websites available to families planning for college regardless of income level, time until schooling, or otherwise. There are tax benefits to be found with using a 529, and it should be reviewed before investing with one. Talk to your financial planner or do plenty of research before putting any money into a 529, or any other college savings plan.
Why Choose a 529 Plan?
There are many benefits to using a 529 plan to begin college planning, namely among them are as follows:
- Tax Benefits
- There are tax benefits to investing in a 529 on the state level; furthermore, your earnings grow tax differed over the life of the plan and are in turn withdrawn tax-free. On the state level, your contributions could result in an upfront deduction, or vice-versa an exemption for your withdrawals and you will not receive a 1099 Reporting form until you make withdrawals. You have the option of investing in other state's 529 programs if your home state does not offer favorable tax options, this should be researched and discussed with a tax professional.
- 529 plans offer a great amount of control of the funds contained therein with the donor(s) remaining in control of the funds, how they are invested, when withdrawals are made, and to what amount.
- Low Maintenance
- Once the funds are invested in the plan of your choice, the plan is managed by an experienced manager via the state or company with little upkeep to be done by you.
There are many reasons ways to plan for college, and the 529 is just one of many; however, it is one of the better options if you are just beginning planning for college. By using a Pre-Paid or Savings Plan option, you can get control, tax benefits, and the ease of low maintenance that you can not get with other savings options, and is a great way to start planning for growing education expenses.