The Education 529 Savings Plan
The Best Little Savings Account You'll Ever Open
Have you ever wondered what financial planners are talking about when they throw around the numbers 529? They refer to one of the best savings accounts you can open for funding education. Those three simple numbers may come in very handy as a part of your financial savings plan for higher education far in the future. If a 529 savings plan has been made for you, you can count yourself as very lucky and know that someone has put great foresight into your college future. If you are planning on creating a 529 for you child, you will be taking a major first step into making higher education affordable for them, even if won’t be for many years from now.
This convenient and controlled savings plan allows families to easily save money for their children’s future higher education costs without having to worry about taxes, penalties or fees. The great thing about the Education 529 plan is that it provides account holders an opportunity to wisely invest for these future expenses on a tax-advantaged basis. Unlike regular savings accounts, the money that you deposit into a 529 is not subject to taxation. This is the federal government’s way of providing an incentive for financial planning and savings in this age when higher education costs have ballooned immensely.
If you are looking for a way to slowly invest in your child’s college expenses while retaining access and control over your money and without breaking your existing bank, then the 529 is a great plan to consider. Whether you have a small regular monthly amount to contribute, or you are in a position to deposit a large sum all at once, the 529 can work for you and stretch your future dollars.
Benefits of an Education 529 Savings Plan
The government has made 529 accounts very attractive to parents considering how their child will afford college. Parents are lured by the ease of opening the account, the freedom they or their child will have with the money when it comes to withdrawal, and options for backing out if necessary. Here are a few of the many appealing advantages when it comes to the federal Education 529 Plan:
In the event of a death, disability or scholarship of the beneficiary, money from the plan can be taken out with no penalty to the beneficiary. This is not always the case for long-term savings accounts, so is a great option to have in those special cases that are often unpredictable.
The 529 plans don’t automatically transfer of control to the beneficiary at a certain age. This plan lets the account owner keep control for the life of the account, if need be. This feature is excellent for parents who desire to have a strong hold over their child’s college finances, since it’s their money and they should preside over its use.
Multiple uses for assets
The assets of the plan can be used to pay for many costs associated with higher education, such as: room and board, tuition, fees, books and many supplies for any post-secondary accredited schools in the U.S. That means any technical school, 2 or 4 year schools, professional schools and any graduate programs. This flexibility makes 529s appropriate for college expenses even when some tuition costs or some boarding costs have been covered by scholarships or other funding, since it can pay for anything education-related.
Flexible beneficiary designation
529 plans do not necessarily have to be planned for a child of yours. In fact, if you are feeling generous or are the benefactor of someone else other than your child, the plans can be opened for just about anyone you want to support, such children, grandchildren, godchildren, other relatives and even friends.
Open to contribution from anyone
Anyone that wishes to contribute to the fund can do so, including relatives and friends of the recipient. In this way, 529 contributions are a great idea for a monetary gift for a child in lieu of cash or giftcards as birthday or graduation presents.
As everyone knows, taxes can be one of the most annoying and deterring factors of well-intentioned savings accounts. But because any money that you contribute to a 529 is necessarily going towards education, it is amazingly tax free. Probably the single best advantage of investing in a 529 Education Savings Plan is that you can do so without any tax penalties until the money is withdrawn from the account. The plans also qualify as a gift-tax exclusion, as an incentive to any potential contributors.
What You Need to Know
- If the beneficiary decides to not attend college, or is unable to for a variety of reasons, you can appoint a new beneficiary for the account. This can be any adult or child family member of the original beneficiary. This includes any brothers, sisters, nieces, nephews, aunts, uncles or even yourself.
- The account holder maintains complete control over the account at all times. This gives you as the holder the right to change the beneficiary at any point and to withdraw funds at any time, giving you plenty of chances to change your mind according to how you want the monies directed.
- Once the account is turned over to the beneficiary regardless of maturity of account or death of the account holder, it is looked at as a “gift” and the account holder is not responsible to pay taxes on the account. It is a major gift for any college student to be off the hook in this regard.
- You can make contributions regardless of your income level. There are no minimum or maximum limits placed on contributions to the 529 Education plan, making it appropriate no matter how large or small the sum of money you have to invest.
- Any limits placed on the balance of a 529 Education Savings Plan accounts are pre-determined by the Internal Revenue Service.
- You can take money out of the account at any time and for anything you wish. Keep in mind, though, that if the funds are not used for higher education expenses, they will be reported to the IRS and you will be expected to claim it and pay taxes on the account like any regular monies. In a way, the 529 plan can also be used as an emergency back-up savings in case something arises that is more important than college expenses.
- Most importantly, the beneficiary will not be penalized if he/she should obtain a scholarship. You can take out as much money that the scholarship is worth with no penalty. For example, if the student was to receive a $10,000 scholarship for one year of college, you could withdraw $10,000 from the account with no penalty, and leave the rest to cover expenses for future years. The 529 is very flexible in this regard, because there is no way to predict how much money a potential college student will need when it comes down to it.
The Bottom Line: Get a 529
As university tuition costs increase and high-school loads grow larger, it is becoming increasingly harder for a future college student to work or save up on their own for the majority of their education costs. They simply don’t have the time or ability necessary to support themselves through college aside from scholarships or grants, so it is critical to begin saving as early as possible for your child’s higher learning costs. The 529 Education Plan is the perfect way to invest without having to worry about penalties and taxes until the account is put to use when it comes time for college.
Whether you have the capability to contribute $100 a year, or $1000 a month, you will have the financial security of knowing that you will be investing in your child’s future each time you put aside funds for a 529. You will not have anxiety about not using the money or not being able to withdraw it for something else, since both of these options are available to you. And most importantly, you will be giving someone else the gift of a higher education that they would never be able to afford on their own. For more information on opening your 529 account, see the US Securities and Exchange Commission. 529 plans can be opened through dozens of different financial institutions depending on your needs and location.