For many this is a no brainer, but you should still consider the pluses and minuses before you start investing in your child’s future. If you are wondering what the heck a 529 College plan is, read further for the answers. A 529 College plan is a tax deferred savings plan for your kids education. These are very similar to a 401(k) savings plan often used for retirement. In this article we will be covering the benefits of the 529 college plan , how the plans work, and some pluses and minuses to consider.
The 529 college plan is a great way to start investing now in your child’s future. The 529 plans are typically sponsored by each state and helps you save tax free. Not only is it beneficial due to the tax benefits but most plans let you purchase your credits in advance in today’s dollars. These credits will be honored when your child enters college . The savings can be large due to the fact that inflation is not a factor in your prepaid tuition. What a deal!
One of the other main benefits of the 529 plans are that you can get into the habit of investing on a regular basis. Some of these plans do let you withdraw your money with no penalty ,and others charge you 10% for early withdrawal. If you start early when your children are in elementary school you will reap the most benefit from both inflation and tax deferment.
529 College savings plans are typically ran by each state. There are also independent funds that you can invest in just like a normal investing account. Typically, there is an enrollment period each year when you can apply and setup your account. From that point forward you can buy credits and invest in the fund whenever you would like. The cost is typically adjusted each year due to inflation. Anyone can donate money to a 529 college plan .
Each parent can contribute a maximum of $11000 a year per child. The limit is $22,000 for married couples investing jointly. If other family members are investing as well the maximum limit is $55,000. The largest plus for 529 college funds are the tax free investment you can make into your child’s future. The second advantage is that the plan is typically in the parents name and acts as an asset for the parent as does any investment account. One of the minuses is that congress has only permitted federal exclusions through 2010. If this time period is not extended it may not be beneficial for kids planning on attending college after 2010. It is very likely this exclusion will be extended as there is over $200+ billion invested currently in 529 college plans . In addition, those funds that you invest today will still benefit from both pre-tax and inflation savings in the future.
The 529 college plans are a great investment vehicle for your child’s future. Make sure you read the fine print on each plan you consider and get enrolled today. If you make a habit of investing every month, before you know it your child’s college tuition will be covered.