Looking to save for college? Take a number – the number 529 to be exact.
College Savings Accounts, or 529s as they’re nicknamed (after the IRS tax code), have become all the rage in recent years. So what are they? And what options do you have when using a 529to save for your child’s college education?
529s come in two major forms. The first is a pre-paid tuition program. This option allows you to pay any amount of future college costs at today’s current tuition rate. With rising college costs, this plan may fit you best.
The other type of 529 is the state college savings plan. Every state in the U.S. has a college savings plan, which allows you to put money into a private savings account. The account is managed by a state-approved financial institution and comes with a variety of investment options. Each month you can add money to your account, even directly from your paycheck if you wish. Certain plans have certain limits do the amount you can contribute but the account allows tax deferred growth and in some states you can even receive a tax break for using the accounts.
529s allow you to take out an account in your name and then name a beneficiary to the account, the beneficiary will eventually receive the money for a post-secondary education. Another added convenience is that you can always change the person’s name who receives the benefit in case one of your children decides not to attend college.
Different states have different plans and options and each option offers you choices. Some funds are filled with a variety of mutual funds that are actively managed. Others are more diversified in their investments and are not as actively managed or traded.
Both types of 529s come with pros and cons depending on your financial situation and how much you wish to invest. Whenever making major financial decisions, it’s best to contact your financial planner to figure out what best fits your needs.
If you have children, it’s safe to say they will someday attend college. Many people forget that sending children through college is just as expensive and important as purchasing a home. It is also one of the most important investments you will make in a lifetime.
Calling your financial planner as soon as possible is a wise choice if you are looking for college savings options or have questions on the details of the accounts. The only thing left to do is remember the number.
529. And you don’t even have to remember an area code.