Back-to-school can stir up many emotions. As you rush to get the supplies your kids need for the new school year, it can be a stark reminder that you’ll send them off to college one day. Yikes! You may not be prepared—emotionally or financially. Let’s explore how a 529 plan can help, at least with the finances.
Send them off to college with a plan
College savings is an important step for any parent, grandparent or guardian. A 529 plan can help make it easier. More important, it may help minimize the need to rely on debt, which is the biggest college concern for both parents and students.
Having a plan can also make you a better saver. Parents with a college plan have saved double the amount of those who are saving without a plan.
Save for college, save on taxes
In addition to the ability to put money away for higher education, 529 plans have tax advantages* for today and when you need the money:
- Earnings in the account grow tax-deferred
- Many states offer income tax deductions for your contributions
- Qualified withdrawals are tax-free
If you think a qualified withdrawal just means for tuition, you may be surprised to learn that money from a 529 plan can be used to also cover mandatory fees, computers, required books and supplies, as well as qualified room and board expenses.
Find your 529 plan - Select your state below
Did you know that residents are not limited to investing in their own state's plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state's plan and other options.
Support their college choice
Since 529 plans are sponsored by states, many people think they must invest in the plan from their state of residence. Or, they believe they must send their student to college in the state where the 529 plan is sponsored.
Neither is true; however, there may be some tax advantages in your state of residence to consider. Some states offer tax advantages no matter where your 529 plan is sponsored.
Your student is not limited to attending college in your state, either. Money saved in a 529 plan can be used for qualified education expenses at two- or four-year public or private colleges and universities, as well as graduate and vocational/technical schools. More recently, many states allow the same tax deductions when 529 plan funds are used to pay for K-12 tuition expenses.
Start small, save big
Opening a 529 account doesn’t have to bust your budget. Many plans let you open an account with as little as $25 and build from there. Even if you start small, you’ll want to save regularly to keep it growing. An easy way to do that is to set automatic investments from your bank account or your paycheck.
In addition, with 529 plans you don’t have to be the sole saver. Many plans offer matching grant programs, rewards programs or gifting services that allow others to contribute to your child’s education. That includes family members and friends.
Someday will be here before you know it
Whether your child is 2 years old or 12 years old, it’s not too late to start putting money away for their college dreams. Don’t let time go by without starting a savings plan for their future education.
The sooner you start, the more time your investment will have to compound over time. That’s why the best time to begin investing for higher education is now.
You could lose money by investing in a mutual fund, even if through your employer’s plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The opinions expressed are those of Evan Mayhew and are no guarantee of the future performance of any American Century Investments fund.
This information is for educational purposes only and is not intended as investment or tax advice.
As with any investment, withdrawal value may be more or less than original investment.
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.