On Tap Blog

Demystifying 529 Plans - Your Guide to Smart College Savings

Written by On Tap Credit Union Staff | Mar 19, 2024 6:20:27 PM

 

Planning for your child's education is a significant undertaking, but with the right tools and knowledge, you can pave the way for their future success. One such tool that many families utilize is a 529 plan.

 

Understanding 529 Plans: What Are They?

A 529 plan is a tax-advantaged savings plan specifically designed to help families save for future education expenses. Named after Section 529 of the Internal Revenue Code, these plans are offered by states, state agencies, or educational institutions. They are commonly used to save for college, but they can also be used for K-12 tuition expenses.

 

 

 

How Do 529 Plans Work?

Family members, friends, or the account owner can all contribute to a 529 plan. There are typically no income restrictions or limits on contributions, allowing individuals to save as much as they desire. Additionally, 529 plans offer a variety of investment options. These can include mutual funds, exchange-traded funds (ETFs), and age-based portfolios. These options allow you to choose an investment strategy that aligns with your risk tolerance and timeline.

One of the primary advantages of 529 plans is their tax benefits. Earnings within the plan grow tax-free, and withdrawals are also tax-free when used for qualified educational expenses. Additionally, some states offer tax deductions or credits for contributions to their 529 plans. Funds from a 529 plan can be used to cover a wide range of qualified education expenses, including:

    • Tuition and fees
    • Books and supplies
    • Room and board (for students enrolled at least half-time)
    • Computers and internet access
    • Certain special needs expenses

 

 

How Do You Start A 529 Plan?

Research Your Options

Start by researching the 529 plans available in your state and comparing their features, investment options, fees, and tax benefits. You may also consider out-of-state plans if they offer better features or investment options. It's essential to consider your long-term financial goals and investment strategies so be sure to consult with your trusted Investments and Wealth Management Advisor to discuss personalized solutions tailored to your needs, abilities, and savings goals.

Open an Account

Once you've chosen a plan, you can typically open an account online or through a financial advisor. You'll need to provide some basic personal information and decide on your investment strategy. Not sure where to get started? Connect with our Investment and Wealth Management team to craft a long-term plan that fits your needs today with your goals for tomorrow.

Make Contributions

You can begin making contributions to your 529 plan immediately after opening an account. Many plans offer automatic contribution options, allowing you to set up regular contributions from your bank account.

Monitor and Manage Your Account

It's essential to regularly monitor your 529 plan account and make any necessary adjustments to your investment strategy as your child gets closer to college age. You can also change beneficiaries or rollover funds to a different plan if needed. Regular meetings with your Investment and Wealth Management Advisor once a year can help to ensure you stay on track and that your plan is optimized to fit your goals.

 

 

A 529 plan is a powerful tool for saving for your child's education while enjoying valuable tax benefits. By understanding how these plans work, their tax advantages, and how to get started, you can take proactive steps toward securing your child's future and making their educational dreams a reality. Explore your options today and take the first step toward smart college savings with a 529 plan. Learn more and start crafting a long-term plan that is right for you with our Investment and Wealth Management Advisors at On Tap Credit Union.