The educational sector isn’t just the path to knowledge. Over the years, it’s become a complicated labyrinth of choices ranging from career path trajectories to financial strategies.
Entering this brave new world can feel challenging enough without having to navigate a host of other issues!
Many students find the process of applying for federal or private loans stressful, to say the least. But if it’s difficult for them, it’s usually twice as tough for parents and guardians - many of whom do the majority of the footwork (and, in some cases, assume the brunt of the risk if they agree to co-sign). That’s all assuming that they aren’t footing the bill, to begin with.
Determining the best path in terms of future education costs isn’t always straightforward. However, if you start early enough, you can get a head start that will save you time and money when enrollment season comes around!
One way to do this is through a 529 plan. Let’s take a closer look.
What is a 529 plan?
A 529 plan, as defined by the U.S SEC (Security Exchange Commission) is ‘a tax-advantaged savings plan designed to encourage saving for future education costs’. They’re authorized by Section 529 of the Internal Revenue Code - hence the numerical labeling.
Known more formally as ‘qualified tuition plans’, they are legally sponsored by the state or educational institutions. Essentially, you’ll pay a monthly amount into the plan, with tax-free investment opportunities starting from as little as $15 a month.
The money in the 529 can be used for education at any level (though most people use them with the goal of covering college fees).
Why is a 529 plan a good idea?
The main benefit to a 529 plan is that it makes it easier (and cheaper) to save.
Each plan will have a single account holder (this can be a parent or guardian, or the student themselves, but it's usually the person paying into the account) and one beneficiary.
Anyone can open a 529 plan, and there’s no limit on how many plans one account holder can have (this comes in handy for parents with multiple children). There’s also no age limit for account holders or beneficiaries, and the money accumulated in the plan can be used at any level in education - from Kindergarten to Law school!
There are also very high aggregate limits on 529 plan account deposits, with maximum amounts ranging from $235,000 to $520,000 (depending on what state you live in).
One important feature of these plans is that they belong exclusively to the account holder. Unlike trust funds, etc., the beneficiary doesn’t inherit automatic access once they reach the legal age. The account holder retains control over the money, and can even change the beneficiary if, for example, their original beneficiary decides not to go to college.
So, what next?
As you can see, there are multiple reasons to consider a 529 plan. They’re straightforward, easy to set up and ultimately a fantastic way to save for future education.
If you’re considering taking out a 529 plan, but aren’t sure where to start, sites like Saving For College are a great source of information!
Author Bio: Rachael is working with Deepak Shukla and a content writer at Pearl Lemon who has written on a diversity of topics, from colored diamonds to SEO software. In her spare time, she enjoys singing, sketching, cooking, and video games.