It is no question that planning to save and pay for your child’s education can be daunting. Every financial representative will have different methods and plans of attack for you to save the most for your children because every family financial situation is different. One effective and popular form of saving for a child’s education is a 529 plan. A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions. Below is an outline of when you should consider opening a 529 plan for your child.
It is never too early to invest for your child. Some people even open plans when they are pregnant in order to begin the savings. You only have 18 years to save for them so why not start right away. There is also no harm in saving even if your child does not go to college. The beneficiary can be changed to another child if they decide not to go. Or you can always hold it in case they may just put it off for another time. Worst case scenario is that you take the money out and are subject to the 10% federal tax penalty. This isn’t the best option but it’s also not the end of the world.
So it is already obvious that saving needs to happen for your child’s education. But why invest in a 529 plan? The first reason is that these plans for specifically designed for children. They were created for the very reason of saving for education. The returns on 529 plans are good as well. Historically the return rates on these types of plans are 6-7% and you often have a lot of investment options to match your risk level. Because they were designed for education there are many tax benefits for the money you are saving.
There are tax benefits such as earnings grow on the tax-deferred basis and qualifying educational expenses are tax-free. Saving with a 529 Plan also saves you money because of their low costs. For most 529 plans, the underlying fund expenses are very low, especially compared to other alternatives, which comes with extremely high costs and hidden broker commissions. Also these plans have parental control which allows them to call the shots. Family members and friends are also able to contribute which can help in your savings goals.
Looking into a 529 plan for your child’s educational savings is beneficial to you and your family. Start saving right away with its tax benefits and low costs. Check out U-Nest to get help establishing a monthly contribution plan and keep track if your savings on the go!