Where has time gone? My kids were just toddlers and now I have a high school graduate! Soon enough he'll be going to college. Fortunately, locally, college isn't nearly as expensive as it is in the US, where people often graduate college with so much debt that follows them around for their entire adult life. One of the ways to prevent saddling your kid with lots of debt while also enabling them to get a good education is by making a college savings fund for your kids. A 529 plan is one of those; read on more to find out why and how you should open one.
Happy College Savings Month! As a busy parent, we know the last thing you need is another item to add to your to-do list. Therefore, let’s discuss a few quick and easy things you can do to help set up your little ones for future success.
One of those things is setting up an education savings account to help pay for future education expenses. In honor of College Savings Month, we’re going to walk you through 529s and why you should set one up for your little ones this September, or anytime!
We like saving with a 529 plan because it offers tax advantages and makes it easy for loved ones to contribute, too. With gifting, you can harness the power of your village to help fund your kids’ future education.
What is a 529 Plan?
A 529 is a tax-advantaged investment tool that helps families save more for future education needs. Funds in a 529 plan grow over time and families can withdraw them tax-free when used to pay for qualified education expenses.
Why Are 529 Plans Important for Families?
Not many families can afford the full cost of college. Paying for post-secondary education – college, vocational school, professional school, or a graduate degree – usually involves a mix of things, including:
A 529 plan is one element that can help to greatly reduce the future burden of student loan debt. Starting a 529 plan early and saving as often as possible can reduce future debt.
Why Is it Called a 529 Plan?
529 education savings plans are named for Section 529 of the federal tax code. Congress created them as a way for families to save for their children’s future education. These plans let your earnings grow without federal tax, and the money you withdraw is also federal tax-free, as long as it’s used to pay for qualified education expenses.
Many states provide deductions or credits on state income tax for contributions made to a 529 plan. If you’re a New Mexico taxpayer, contributions you make to a New Mexico 529 plan can be deducted from your state income taxes.
Who Can Invest in a 529 Plan?
Any U.S. citizen or resident with a valid social security number or taxpayer identification number can invest in a 529 plan. Most 529 account savers will be parents, but family and friends can open an account for a child or contribute to an account opened by someone else. You can even open one for yourself or your spouse!
Whether you’re new to investing or you’re an experienced investor, 529 plans offer a variety of 529 investment choices to meet your needs and risk tolerance.
Is a 529 Plan Better Than a Savings Account?
529 plans are different than cash savings accounts and offer several potential advantages. First, while savings accounts might be low risk, they currently offer a lower rate of interest compared to other investments. 529 plan investments include mutual funds, which have potentially higher risk than a savings account, but also the potential for higher investment returns. 529 plans also have tax advantages that regular savings accounts don't provide. 529 savings plan account investments are not guaranteed and are subject to market fluctuations.
What Expenses Do 529 Plans Cover?
529 plans are flexible. Your account can be used for a variety of qualified education expenses and uses, including:
- Scholarships & Grants - Gift aid awarded based on a variety of factors, such as: demonstrated financial need, academic achievement, leadership and field of study
- Need-Based Financial Aid - EFC (estimated family contribution) is subtracted from COA (cost of attendance) to determine amount of financial aid needed; need-based financial aid is determined based on the remaining amount
- Work Study - Government funds allowing for part-time employment of eligible students
- Personal Savings
- 529 Plan: a tax advantaged plan that is used specifically to save for education expenses
- Classic Savings Account: a traditional option that will earn a small amount of interest over time
- Student Loans - These are private or federal and require repayment with varying interest rates
A 529 plan is one element that can help to greatly reduce the future burden of student loan debt. Starting a 529 plan early and saving as often as possible can reduce future debt.
Why Is it Called a 529 Plan?
529 education savings plans are named for Section 529 of the federal tax code. Congress created them as a way for families to save for their children’s future education. These plans let your earnings grow without federal tax, and the money you withdraw is also federal tax-free, as long as it’s used to pay for qualified education expenses.
Many states provide deductions or credits on state income tax for contributions made to a 529 plan. If you’re a New Mexico taxpayer, contributions you make to a New Mexico 529 plan can be deducted from your state income taxes.
Who Can Invest in a 529 Plan?
Any U.S. citizen or resident with a valid social security number or taxpayer identification number can invest in a 529 plan. Most 529 account savers will be parents, but family and friends can open an account for a child or contribute to an account opened by someone else. You can even open one for yourself or your spouse!
Whether you’re new to investing or you’re an experienced investor, 529 plans offer a variety of 529 investment choices to meet your needs and risk tolerance.
Is a 529 Plan Better Than a Savings Account?
529 plans are different than cash savings accounts and offer several potential advantages. First, while savings accounts might be low risk, they currently offer a lower rate of interest compared to other investments. 529 plan investments include mutual funds, which have potentially higher risk than a savings account, but also the potential for higher investment returns. 529 plans also have tax advantages that regular savings accounts don't provide. 529 savings plan account investments are not guaranteed and are subject to market fluctuations.
What Expenses Do 529 Plans Cover?
529 plans are flexible. Your account can be used for a variety of qualified education expenses and uses, including:
- Tuition and fees
- Books
- Supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis
- Computer technology, equipment, internet access
- Expenses for educational special needs services
- Up to $10,000 a year for K-12 tuition
- Transfers up to $18,000 a year to an ABLE account for the beneficiary
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
- Move up to $35,000 of unused funds to a Roth IRA for the beneficiary