Who Can Benefit from a 529 Plan?
If you’re a parent, friend, or relative who wants to help the beneficiary attend college, this plan is a great way to invest in their future. There are no limits on who can set up a 529 plan–you can even make one for yourself. Many plans allow you to start with a small initial payment, then contribute a portion of your paycheck until the beneficiary attends college. If you can afford the small deduction, consider setting up a 529 to help the recipient plan for the future.
How does a 529 Plan Work?
The process is different depending on which type of plan you choose. If you choose a prepaid tuition plan, you’ll pay for tuition credits now for the beneficiary to use later. This plan can be offered by the state or the university in question. Alternatively, if you choose a savings plan, your payments will be invested in various options to help your income grow. 529 plans are not subject to federal taxes, but are not tax-deductible.
What Types of Plans are Available?
When you start looking for a savings plan, there are two different types with different options and features. With a prepaid plan, you’ll purchase tuition credits now for the beneficiary to use when they attend college. If you can afford this option, it’s a good way to get the major costs out of the way. However, this plan might not be available in your location, and application times may be limited.
Conversely, a savings plan allows you to start with a typically small payment and invest your money over a period of years. Your insurance agent will work with you to help you choose the right investment. However, the market can be unpredictable, so while you might experience some gains with this plan, you might also end up with losses. When you shop for other insurance policies like car insurance and accident insurance, consider talking with your agent about investing in a 529 plan to discuss your options.
What are the Benefits ?
When you invest in a college savings plan, you’re reliving the beneficiary of some of the debt and bills that they would accrue otherwise. College is expensive, and any amount of money helps, even if it doesn’t cover the full tuition. A savings plan also allows you to save money over time, so you don’t have to pay a large sum all at once. This makes it easier to pay for college, not only for your beneficiary, but for you, as well.