Depending on where you are in your life right now you may have different savings goals that you are working towards.
One thing my husband and I are focusing on right now is figuring out what we can do to save for your children’s education.
Our boys are fairly young so this is something we just started, but I wanted to share a few tips with you about how you too can save money for your child’s college with a 529 Plan. With a few simple steps, you can easily make plans that will allow your child to have the education they want and deserve.
How To Save For Your Child’s College With A 529 Plan
If you haven’t heard of the 529 plan yet, it is a college savings account that is exempt from federal taxes. This is a great way to specify a savings plan for individual children without concern about state income taxes.
Decide what plan to utilize: There are many 529 options out there to choose from. To begin, you need to do some comparisons amongst the plans. While most are fairly close in comparison, there are a few things that might make one 529 plan better for you than another.
Specifically, you want to check about out-of-state options as well as in-state options that could be a better benefit to your child.
Another thing to consider when deciding what plan to use, is whether you want to use a prepaid tuition plan or a savings plan. A prepaid tuition plan gives you the ability to lock in the cost of tuition that is current. That means you won’t have to worry about the rising costs of tuition over the years.
Using a prepaid plan may sound ideal, but it does have some stipulations you will want to consider.
Specifically, the fact that many of the prepaid plans out there also limit what the funds can be spent toward. That means it may only be used for an in-state public college and some even restrict the funds for just tuition but not room and board, books, or other fees associated with college.
Check into matching programs. Depending on your income level, you may be able to find grants or scholarships in your state that will match your 529 investment. Lower income families are often able to receive assistance with a matching program that will double your investment.
Additionally, you may find that some employers also have a matching program for 529 plans.
This helps keep your money tax free and takes advantage of a way to increase your pay level and work benefits without worrying about increasing your tax bracket.
Learn about the specific contribution limits. Each plan varies, and each state will enforce a total contribution limit. This limit is a cumulative amount that will be the most you can contribute into one account. This should be more than enough money to cover expenses for college in the future.
Usually the maximum is over $300,000 for one account.
If you take advantage of a work contribution or matching contribution plan, you’ll want and need to be careful about how much you contribute. These numbers may seem large, but you will be surprised at how fast they add up.
Learn about how your 529 plan invests your money. These are not just basic savings accounts, but plans that grow upon investments. There are a multitude of options out there to consider, and one of those is whether or not your 529 plan option uses investment portfolios to grow your savings.
Depending on when you start saving, you may want to monitor investments made. Specifically, you will want to be careful about investments the closer your child gets to college age.
Changing to a safer choice is a great idea for the last few years of high school to make sure your kids have the money they need for college without worry of the stocks or markets changing things.
Create a 529 plan for each child. You’ll want to create a 529 plan for each of your children to make sure they all have appropriate savings in place for their education. While most won’t be able to save as much as the limit is, it is a great idea to have individual plans for your kids so you won’t risk reaching the investment level and being unable to provide education for each child individually.
Setting up a 529 plan for your child’s college is easier to manage than you may think. Simply using the tools around you and asking a few simple questions is all you need.
A 529 plan is an excellent way for you to save money to pay for college for your children while taking advantage of a tax deduction in your state.
What are you doing to save for your child’s education?