If you have been considering options for college savings, this is an excellent time to consider a 529 account. With 529 Day just around the corner on May 29, there will be many events and information available for you to learn why this may be a good option for you and your family. Below are a few items to keep in mind as you start the evaluation process.
Timing: It’s never too late
Let me repeat this – it’s never too late to start a 529 savings plan. In its most recent survey of college pricing, the College Board reports that a "moderate" college budget for an in-state public college for the 2014–2015 academic year averaged $23,410. Given this figure, whether you have an infant or a junior in college, every bit of savings helps.
If you have younger children, now is an ideal time to open an account, even if you have to start small. Accounts can be established with as little as $25, so take this step and fund what you can when you can.
If you have older children, you know expenses are incurred all the way through graduation, so using an account to manage those dollars can help you not only plan for those items, but may also provide you with certain tax benefits. A tax advisor can provide you with more details on these potential advantages.
Research: Know your options
529s have several significant advantages. In addition to the tax benefits, there are typically several investing options within 529s, the account parameters are flexible and the product is not overly complex.
From a product standpoint, it’s important to select good investments. Be mindful that you take on the appropriate level of risk based on your child’s age and that you adjust it as necessary as college nears.
Flexibility is a great benefit as well. You can withdraw funds for a variety of qualifying expenses, and there also is forgiveness on withdrawal penalties if your child earns a scholarship.
Finally, it’s portable. If not all the funds are used, the account can be transferred to another child or saved for future generations.
Costs: Understand the fees
529 products vary state to state and so do their costs. Most states allow you to contribute to any state plan. However, the plan itself will have specific fees for maintaining the account and for the underlying product, which can differ significantly from plan to plan. Do your homework to make sure you find the best plan for your situation.
Communicate: Share the priority with family members
Include your family in this plan. If you’re looking for a way to streamline some of the birthday and Christmas presents, this is a great option to provide. Instead of buying the latest Barbie or superhero, ask them to consider an account donation instead.
Relax: Don’t be overwhelmed
Most individuals face some initial inertia. It’s easy to become so consumed with the end game that you can’t even make it to the coin toss. I don’t know which fund to choose. It’s so much money. There are too many investment products to consider.
Fortunately, I have good news. First, there are many great online resources that can provide initial direction. You can also talk with an advisor who can help you make those decisions. Finally, talk with family and friends to see what they have done.
Remember, “now” is always the right time to start planning for your children’s education. As college costs continue to rise, saving as much as you can before they earn that cap and gown can make a big difference in their financial future.