What is a 529 Plan?
A 529 college savings plan is a smart way to get a jumpstart on saving for a child’s future and keep up with the rising cost of higher education. With a 529 plan, you have the ability to save for your child’s college education by contributing funds to an account on a tax-advantaged basis. The savings are then invested – much like contributions to a 401(k) – or used to purchase units or credits from a college or university, depending on the type of plan you choose.
Until the funds are withdrawn, you can contribute to the account and your contributions will appreciate completely tax-free. When your child is ready to head off to higher education, the money in the 529 plan can also be withdrawn tax-free as long as it’s used for eligible education expenses, such as college tuition, room, and board. (Beer and ping-pong tables do not qualify.)
The Bells and Whistles
There are a lot of options out there when it comes to saving for your child’s college education, but 529 plans offers some hefty advantages over the alternatives. Here are some of the big attention-getters:
- Receive tax breaks on your 529 savings. Contributions to a 529 plan are tax-deductible on most states’ taxes, so instead of paying Uncle Sam, you have more money to invest in your child’s education. Funds in a 529 grow and are withdrawn tax-free if distributions are used for qualified college expenses. To get a sense for how important this is, look at the savings difference vs. a regular savings account.
- Open an account anywhere in the country. There are 529 plans available in all 50 states and the District of Columbia via state, state-sponsored agencies, and qualified educational institutions, so just about every parent has the ability to save for their child’s education. It also means that you may be able to benefit from higher rated plans in other states.
- Set up a 529 plan with no hassle. Opening a 529 plan is easy and can be done through your state 529 website or a personal financial planner of your choice.
- Choose your own savings adventure. There are three types of 529 plans and each provides its own unique set of tax and savings benefits.
Whether your child is just learning to walk or entering their teenage years, a 529 plan is a unique and easy way to invest in your child’s education now in order to ensure their tomorrow. Let GradSave help you grow your savings for your child’s future — sign up for an account and start saving today!