The following post is from guest author Ryan Jones. Ryan is a contributory writer associated with Debt Consolidation Care and has written several articles for various financial websites. He holds his expertise in the Debt industry and has made significant contribution through his various articles.
A 529 plan is a kind of savings plan which is especially designed so as to encourage savings for the future college or any other mode of higher education. These savings plans have some tax advantages and are also legally known as the “qualified tuition plans”. The 529 savings plans are named so because they follow Section 529 of the Internal Revenue Code and are mainly administered by the different state agencies and the organizations.
Six Strategies for Beginners:
The best thing to do for your child is to plan for his or her education from now on so that your child does not face any kind of hindrance later in case of higher education. The 529 plan is one such savings that can help your child for future education purposes. Some of the strategies that you can follow as a beginner in order to successfully save money for the future higher education of your child are:
1. Know about your state plan:
Different states plan the 529 savings differently and so you need to know your state plans on the 529 savings account. The structure and the investment options are different in different states. In addition, different states have some different kinds of advantages for the investors, like state tax deduction, scholarship opportunities, grants, creditor protection, and exemptions from state financial aid calculations and so on.
2. Know about different types:
There are mainly two types included in the 529 plan and in order to be a successful investor, you need to know about the two types of 529 plans available. The two types are – prepaid tuition plan and savings. The prepaid tuitions plans are also known as the guaranteed savings plans and are now available in 13 states. One of the advantages of the guaranteed plan is that it can be bought at the current tuition rates and can later be paid out as per the future rates. The prepaid plans are more under the state administration and the educational institutions.
3. Plan on your savings objectives:
You need to decide and plan on your savings object. That is, you will have to decide how much you want to save and for that how much money will you have to put into the 529 savings account. For that, you can also use a 529 family calculator available online. In order to successfully invest and reap the best results, you will have to determine on the time within which your child is going to join college.
4. Decide on the best type for you:
As said above there are two different types of 529 savings. So, after you decide on the amount that you want to save, you will have to decide on the type that will be the best for you and your child’s future education.
5. Know the tax perks and fees:
In order to successfully invest in the 529 plan, it is really important for you to understand the fees involved with the savings plan like the enrollment fees, maintenance fees, and asset management fees and so on. However, some college savings plans allow lower fees too. There are also tax benefits involved with 529 savings plans as these are not subject to any kind of federal tax or in many cases state taxes too.
6. Maintain regular investments:
It is also essential for you to maintain regular investments in the 529 savings account so that you are able to save exactly the amount you have decided on. In addition, with regular investments, you will also be able to reap the benefits of dollar cost averaging.
There are in fact various advantages of a 529 plan. You should be aware of the advantages too like a 529 plan is protected from bankruptcy, it can be used at any of the accredited colleges in the country, and there are even many states that offer low cost savings plan options in regards to the 529 plan.
Readers: What do you think of these plans? Will you incorporate this into your college savings strategy or do you have other ideas for financing your children through college?
Photo Credit: Microsoft Clip Art