Educating a child is almost like an on-going marathon that can be equally taxing yet can be managed well with proper planning, budgeting, and preparing. If you’re wondering how to begin this journey of saving for college for students, the answer is the 529 plan.
The simple idea is to save as per your affordability and stretch if you can. Obviously, when you kickstart this process, there would be a bouquet of choices available in terms of several financial accounts. But the 529 plan holds its position firm for its tax advantage feature and the idea to contribute money that has been already taxed.
529 in a nutshell
The 529 scheme is a state-run plan wherein you just open an account and keep investing. No matter how you choose to invest, your money will grow tax-free and you can easily withdraw without any hassle of income and capital gain taxes. Additionally, some states offer state tax benefits on the contributions made to the plan.
Kickstart the plan
To start with, anyone can set an account irrespective of their incomes and the money can stay safe for an indefinite period. The money saved in this plan can be withdrawn at any point of time provided; it’s being used for higher education to cover college tuition fees, books, housing, lodging, and miscellaneous supplies. Since it is a state-run plan, you will have several options offered to choose from. One such option is the age-based portfolio that reduces any risk factors as the time to college education approaches.
Contributing to the plan
You can easily set up this account with a bare minimum contribution or a meager of anything starting with $25 and keep contributing consistently through the automatic monthly method. Your plan will have its unique investment structure that will fetch a certain return rate. As you start contributing, gifts are much welcomed from family and friends to the limit of $15,000 per child. The best times to contribute are birthdays, holidays, graduations and other celebrations.
Managing the plan
This plan can be transferred to another beneficiary if the child decides not to pursue a college education. Also, you could hire an expert or a financial advisor to manage your 529 plan. Essentially, you must plan to start investing as early as possible when your child is small.
As when you start withdrawing, follow the thumb rule to save enough by not taking out more than the actual expenses. Since it is a state-run plan, do keep a close watch on the rule that may include maximum account balance limit, contributions, investment growth, and withdrawal policies. To save more, you can club your 529 plan with other tax benefits such as the American Opportunity Tax credit benefits. The simple idea is that you get some free money which is fair enough to sponsor a college education.
Now you could either purchase direct readymade plans or work it out with a financial advisor. Since this plan is owned by the contributor or any guardian, the owner is the sole decision-maker and can make the best use for the intended purpose of saving for college for students.