A 529 is a tax-advantaged college savings plan that lets you save money for your loved one’s college education in an individual investment account that is owned by you. The earnings in these accounts accumulates tax-free as long as the funds are eventually used to pay for college. Some plans let you enroll directly, while others require that you go through a financial professional.
How Does a 529 work?
The details of a 529 plans vary by state, but there are two types: savings and prepaid. With savings programs the full value of your account can be used at any college or university. Prepaid covers in-state tuition but allows you to transfer all or most of the value of your contract out of state.
How Do I Open a 529 Plan Account?
You need to fill out an application where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. You are typically required to make an initial minimum contribution.
Who Needs a 529?
The cost of a college education is substantial, especially if you have more than one child attending college at one time. Any parent who wants to minimize the financial burden of eligible college expenses can benefit from a 529 plan. A 529 can also be applied to other qualified post-secondary training.
When Should I open a 529?
The earlier you open a 529 plan, the greater the opportunity for a comfortable nest egg by the time your children are ready for college. As part of a long-term college savings plan, many parents choose to start a 529 plan when their children are very young. Each family’s financial circumstances differ, so check with your financial advisor.