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By Evan Mayhew - August 7, 2018
Back-to-school season can stir up many emotions. As you rush to get the supplies your kids need for the new school year, it can be a stark reminder that you'll send them off to college one day. Yikes! You may not be prepared—emotionally or financially. Let's explore how a 529 plan can help, at least with the finances.
College savings is an important step for any parent, grandparent or guardian. A 529 plan can help make it easier. More important, it may help minimize the need to rely on debt, which is the biggest college concern for both parents and students.
Having a plan can also make you a better saver. Parents with a college savings plan have saved double the amount of those who are saving without a plan.
In addition to the ability to put money away for higher education, 529s have tax advantages* for today and when you need the money:
If you think a qualified withdrawal just means for tuition, you may be surprised to learn that money from a 529 can be used to also cover mandatory fees, computers, required books, supplies and qualified room and board expenses.
Since 529 plans are sponsored by states, many people think they must invest in the plan from their state of residence. Or, they believe they must send their student to college in the state where the 529 is sponsored.
Neither is true. However, there may be some tax advantages in your state of residence to consider. Some states offer tax advantages no matter where your 529 plan is sponsored.
Your student is not limited to attending college in your state, either. Money saved in a 529 can be used for qualified education expenses at two- or four-year public or private colleges and universities, as well as at graduate and vocational/technical schools. More recently, many states allow the same tax deductions for K-12 tuition expenses.
Opening a 529 account doesn't have to bust your budget. Many plans let you open an account with as little as $25 and build from there. Even if you start small, you'll want to save regularly to keep it growing. An easy way to do that is to set automatic investments from your bank account or your paycheck.
In addition, with 529s, you don't have to be the sole saver. Many plans offer matching grant programs, rewards programs or gifting services that allow others to contribute to your child's education. That includes family members and friends.
Whether your child is two years old or 12 years old, it's not too late to start putting money away for their college dreams. Don't let time go by without starting a savings plan for their future education.
The sooner you start, the more time your investment will have to compound over time. That's why the best time to begin investing for higher education is now.
Get answers to your questions about 529 Plans.
Learn the definitions of the top terms and acronyms you’ll encounter when saving for and paying for your children's college educations.
Wondering what qualifies as an eligible expense for 529 plan funds? If you don't need it for room and board this year, you have many great options.
Learn how grandparents can save and pay for a child's college tuition to minimize negative impacts on financial aid.
College decisions are hard enough. Don’t let these common 529 myths keep you from getting started.
Retired and want to help fund a child's education? Here's how to link two of life's most important investment goals.
November 21, 2018
Beyond the tax-advantages afforded by 529 plans, gifting money for college may help fulfill a child's dreams for the future. An accelerated gift may also reduce the benefactor's estate taxes. This can add up to good news for college-bound recipients and gift givers alike.
June 06, 2018
* The availability of tax or other benefits may be conditioned on meeting certain requirements.
You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.
As with any investment, withdrawal value may be more or less than your original investment.
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.