When it comes to planning for your child’s future, college saving plans are a must to have. The college savings account or 529 plan is best for you to start investing in as soon as possible. Despite several benefits, there are various things that one doesn’t know about the 529 plan. Knowing these aspects will help you make informed decisions regarding your child’s future education and maximize your savings.
Start the College Saving Plan Early
You don’t have to wait until your child reaches a particular age to start the 529 plan. You can start investing when your child is young. If you start investing sooner in the 529 plan, you will get a better return on this plan when your child is about to go to college. That means the education fee will be easily covered, leading to a lower financial burden for you.
Each Child Should Have a Different 529 Plan
If you have more than one child, you need to have a separate plan for each. This will help you save more effectively to secure your children’s education in the future. In case one of your children doesn’t complete their education, you can even transfer the unused funds to support another kid’s studies.
529 Plan Does Not Affect The Financial Aid
529 can also help provide financial aid to your child in the future. Even if a bit of the amount is deducted for the same, the rest can be used when needed. The financial aid program won’t deduct more than 6% of the total amount from the 529 plan. So, your child will be left with a considerably higher amount.
Invest More to Get More Benefits
It is all about the interest you will get on a 529 plan. The earlier you start the plan and the more money you invest, the more your savings will grow, maximizing the benefits of compound interest. This would lead to profitable gains in the long run. This strategic financial investment has several rewards and tax benefits to secure your child’s future education.
Get a State Sponsorship for a 529 Plan
When you have the option to choose from a bank-sponsored plan or a state-sponsored plan, always go for the state-sponsored plan. There is a reason for it. While a bank-sponsored plan may seem lucrative, there is a small amount that you have to pay extra every time you invest in the 529 plan. At the same time, a state-sponsored plan has no additional cost. In a long time, this amount will look like a prominent figure. So, it is better to invest in the state-sponsored 529 plan.
Family Members Can Become Beneficiary
If you are worried your child won’t be eligible for benefits or the 529 plan, there is good news for you. You can quickly transfer the 529 plan to a different beneficiary, like a parent or a sibling, without incurring any taxes or penalties. So, the money you invest in the 529 plan will never go to waste.
401(k) Plan Before Investing in a 529 Plan
Before investing in a 529 plan for your child’s future, you must first have a substantial 401(k) covered. It is always an excellent step to invest in a 401(k) as much money as you can and then start the 529 plan for your child. This way, you won’t have to worry about your future or rely on your children for financial support when you are old.
The 529 Plan Can be Rolled Over to a Roth IRA
As mentioned, no money invested in a 529 plan will be wasted. In the future, if there is a leftover amount in the 529 plan, it can be transferred to your retirement funds. This is the new policy of the government launched in 2024. One child could have only one 529 plan earlier, but now the guardians can start multiple plans for a single child. This increases the benefit of the college saving plan.
529 Plans Don’t Have an Expiry
The 529 plans are not time-bound. Your child can use them anytime to fund their education. If your child decides not to go to college or take a break mid-semester, the amount in the 529 plan will be safe in the account until they decide to join the University again. This money can also be used for higher education purposes.
Always Take the Help of a Financial Advisor
Different types of 529 plans are available in the market, so it might be not easy to decide which plan you should go for. Deciding by oneself might not be the best idea here. Find a financial advisor and ask them to help you select the 529 plan for future savings. This might take a while, but you can choose the best 529 plan for your child this way.
Some States Offer Tax Benefits On 529 Plan
Some states offer tax benefits to residents who choose their 529 plan. If your state offers such tax benefits, it is better to take your home state’s 529 plan instead of another state’s. When you take your home state 529 plan, you do not just save on tax, but sometimes the state also provides additional incentives, such as matching grants for beneficiaries.
529 Plan Can be Used For Private or Government Institutions
When choosing the 529 plan, you do not have to worry about the limited number of universities to which your child can apply. 529 plans are flexible and let your child choose from many colleges and universities. These universities include both government and private universities, allowing your child to attend their preferred University without any restrictions.
529 Plans Are Not Limited to Graduation Degree
Many believe that 529 plans are only for graduation, but you can use the funds for many training programs and postsecondary education. This gives your child flexibility to pursue diverse career paths, ensuring you have savings to fulfill various educational goals. However, it’s essential to check the details of your plan carefully before making a selection.