529 PLAN INVESTING OPTIONS

Saving for a loved one’s higher education is often a costly endeavor. In fact, many parents begin to prepare by setting up savings accounts and investment portfolios in their child’s formative years to help cover future tuition and housing costs. 

In the late 1990s, Section 529 was added to the Internal Revenue Code, allowing qualified tuition programs tax-free status. This means authorized savings programs are exempt from taxation when their proceeds are used to pay for education. Since 2019, that now also includes K-12 and apprenticeship programs.

Setting up a 529 plan on behalf of your child doesn’t have to be complicated. Here’s what you need to know to get the most out of these tax-advantaged savings plans:

Did you know 529 plans are state-sponsored and each state has a certain degree of freedom as to the rules of its plan? For example, each state has its own unique limit for aggregate contributions, ranging from $230,000 to $550,000 as of 2022. You aren’t limited to your home state’s plans, though.

In fact, there are two types of 529 plans: educational savings plans and prepaid tuition plans. ESPs allow you to invest your after-tax dollars in stocks, bonds, and mutual funds, and their value will fluctuate based on the performance of your investment portfolio. Meantime, prepaid tuition plans allow you to pre-pay the cost of a public college program. This can also be used to pay for private and out-of-state institutions.

Anyone can open a 529 plan, including parents, grandparents, and friends. You can even open one individually to save for your higher education. Not to mention, being a beneficiary of a 529 plan doesn’t affect your financial aid or FAFSA eligibility, so you can still receive aid or scholarships.

Conduct Your Own Research

There are a lot of factors to consider when choosing a 529 plan. Almost every state offers one, and these can usually be customized to suit your needs. Consult with your state office on the details of your particular plan. 

There are also a lot of platforms that offer more information on how 529 plans work, the best plans available, and the available options for funding a plan for your child’s higher education. Some platforms even allow you to make automatic contributions to your kid’s college fund when you buy things from their website. Do your research and identify the best plan for you and for your kid’s future.

Understand What You Can Manage

Saving for your kid’s college education with a 529 plan entails investing your money into securities such as stocks and mutual funds. This introduces a certain level of risk, and you need to feel comfortable with that. Many plans offer portfolios of low-risk assets, such as bonds or money market funds, for more conservative investors. Keep in mind, though, that the greater the risk, the greater the potential reward.

A 529 plan is a reliable way to prepare for your kid’s college tuition, and if done right, can save you a lot of money in the future. Make sure you choose a plan that suits your needs and income. And, finally, make sure to adhere to the stipulations of your plan to get the most bang for your buck.