College is a large expense and one worth planning for, especially if you want your future college graduate to start their lives with minimal debt. One common way to prepare for such an expense is to open a 529 college savings plan.
What is a 529 plan?
College savings 529 plans are state-sponsored savings accounts that offer both tax and financial aid benefits.
What states run a 529 program?
Almost every state has a 529 program, each with different perks and benefits. You can pick based on perks and you don’t need to live in the state you opened the account in.
You can look at 529 plan options using this tool from SavingforCollege.com.
What are the two types of college 529 plans?
There are two types of 529 plans, they are:
College savings plans – This plan is similar to a Roth 401k or Roth IRA by allowing you to contribute after-tax income in the form of mutual funds and other types of investments. There are a number of investment options to choose from and the 529 account will go up and down and value according to those investment choices. The money is this account is available for tuition, books, and often housing.
College prepaid tuition- This plan can be used to pre-pay all or part of the costs of an in-state public college education. Sometimes, they can be converted for use at private or out-of-state colleges.
What are the perks of using a 529 savings plan?
Each state provides slightly different incentives for its 529 programs. But some of the overall benefits include:
Large income tax breaks (for federal and often state taxes)
The donor stays in control of the account until its use
They’re low maintenance
When can you start them?
You can start one of these savings plans at any time. Most 529 programs are “set it and forget it” meaning the investments come straight out of your paycheck or bank account.
Where can I learn more about college 529 plans?
There are a lot of online resources for comparing and ranking different 529 programs. You can reference one of these, or reach out to your friendly neighborhood tax professionals. We can help you select the best option for you.