The following is a guest post about 529 plans. If interested in submitting a guest post, please read my guest post policy and then contact me.
Back in 1999, I started a 529 college savings plan for my daughter. She was five at the time, and I was a single working mom. College felt like a long way off, and that monthly $50 automatic deduction from my checking account? Well, some months it hurt.
But I plugged away at it for the next 10 years. Especially in the beginning, I’d open the quarterly statement and cringe when I saw the slowly-growing sum. When the market faltered, I’d see that the account balance increased by less than my contribution. But I’d remind myself of the relative stability of long term investments and file away the statement with nothing more than a sigh.
And I kept investing in my daughter’s future month after month.
Last August, it all came full circle.
That was the month my daughter started school at a private university.
But, let’s backtrack to last March for a moment. We traveled four hours from home for a campus visit. Going into it, my daughter was fairly sure this was the place for her, but I wasn’t convinced. At almost $15,000 a semester, I went into it with my fair share of skepticism. Was this school worth the staggering cost?
We spent the day touring the campus, meeting instructors, alumni, and current students. I sat in on parent panels. My daughter spent the night in the dorms.
When we left the next day, we both knew this was the only place for her. It felt that right, that perfect.
And that’s where her 529 plan came in. Because financial aid – scholarships, grants, and loans – only covered about 75% of that $15,000. Without the 529 plan, my daughter wouldn’t have been able to enroll at her dream school in August.
Here are a few things every parent should know about 529s:
1. Your child doesn’t have to attend college in the state that issued the plan. My daughter is going to college in Missouri, and I’m paying her tuition with a Kansas plan.
2. The earnings on the plan aren’t taxed as long as they’re used to pay for eligible college expenses.
3. In some states, your 529 contributions qualify for an income tax deduction.
4. You can participate in almost any 529 plan in the US regardless of where you live. I started Nebraska 529 plans for my younger children while living in Missouri. (This might, however, affect the deductibility of your contributions.)
5. In many cases, 529 plans can be used at eligible trade and technical schools if your child decides not to attend university.
6. Also, they can be transferred between family members without consequence. So, say your oldest daughter decides she’s not going to attend college. You can use her 529 plan to pay for your middle son’s college expenses by simply changing the plan beneficiary.
7. Accessing the money is surprisingly easy. In my case, I could choose between two options- having a check mailed to me, or having the funds paid directly to the school. I thought the latter option sounded quicker and easier. It took one short phone call for the balance of my daughter’s fall tuition balance to be paid.
8. Speaking of easy: like I mentioned earlier, you can fund your 529 plan with an automatic deduction from your checking or savings account.
9. You don’t have to contribute a huge sum every month. I did $50, but some plans have no minimum requirement. Remember: something is better than nothing here!
10. If your kids end up with way too many toys at holidays and birthdays, consider suggesting that grandparents, aunts and uncles contribute to a 529 plan instead, or at least cut back on the toys and donate part of what they’d normally spend to a 529. In most states, you can open a 529 plan for a grandchild, niece, nephew, or even a friend.
You never know – the perfect college or university for your son or daughter might end up being one of the most expensive. I’m glad I had a 529 plan so that my daughter could pursue her college education at the place of her dreams in spite of the costs associated with it. Taking the initiative to make an investment for your child’s future can reap you plenty of benefits. Have you ever thought about availing college savings plans for your kids?