529 College Savings Plans for Momma’s Little Einstein
This makes Cents…
College might seem like a long way away for your young genius, but it will be here before you know it. Regardless of whether 2-year old junior is crunching numbers on the calculator or crunching crackers in the carpet, the real question is, how are you going to pay for your kiddos’ higher education?
A 529 College Savings Plan could be the help you need. It’s a savings plan for your child’s higher education with tax benefits. The money you earn in the account will grow tax-free (if used for qualified expenses). Think of it as a lifeline.
But do your homework because different states have different rules. Here’s some basic information to help you create a Centsible Plan for starting a 529 plan.
- What can the 529 Savings Plan be used for?
- In order for the earnings to grow tax-free it must be used for qualified education expenses which can include tuition, fee, books, room and board, computer, and supplies.
- In addition to college, 529 plans allow you to use the funds for Kindergarten-12th grade for tuition up to $10,000 per year.
- Who can open the account?
- Any US resident 18 years of age and older. There is no income limit.
- The account owner will select the beneficiary (the person who will receive the funds)
- What if the child doesn’t go to college?
- The beneficiary can be changed to another sibling or relative.
- What if the child gets a scholarship?
- The funds can be used for other qualified education expenses such as room and board and books.
- What is the money invested in?
- Depending on where you open the account, most places have pre-selected funds to choose from. They are usually mutual funds.
- You can only change the investment allocation twice a year.
- How much can you put in?
- There is no limit, however, making contributions to the 529 is considered a gift. Therefore, it follows the gifting laws which allows for 1 person to contribute $15,000 per person per year. Anything over that would go towards your lifetime gifting exclusion.
- 529 plans do allow for “superfunding.” An individual can contribute 5 years worth of gifts in one year to the 529. That would be a max of $75,000 ($15,000 x 5 years). Anything above that would go towards your lifetime gift exclusion.
- What if the funds never get used?
- Worst case scenario- If the child doesn’t go to college and there is nobody else to transfer the account to, you would pull the money out and pay taxes and a 10% penalty on the earnings.
I hope this information is useful in helping you understand 529 Savings Plans.
Disclaimer: The information on this blog is for educational and informational purposes only. We recommend you consult with a financial professional and/or tax professional before making any financial decisions.
Charlene
15 May 2020The changing of beneficiary is important to know about. My daughter got a 2-year scholarship to our local community college and did not want to pursue further college afterwards, so we have the ability to transfer those funds to her sister for college in 2023.
Jennifer Dyson
20 May 2020Yea, it is very important. I think a lot of people are afraid to start a 529 in case their child doesn’t to go college. It is good to know there are other options! Thanks for your comment!
La'Keisha
16 May 2020Wow, I never knew about this. My cousin has kids and I will let her know about this so that she can get ready for her little ones for college. Even though they are not close to college age yet there is nothing wrong with getting a jump on things now thank you I look forward to reading more.
Jennifer Dyson
20 May 2020Thanks for your comment. I agree, its never too early to start saving!
Lisa
19 May 2020This information is quite helpful. As part of my family’s financial journey, saving for our kids; future is a priority. I intend to set them up for a debt-free start in life, but the question I kept wondering about is – what if they don’t go to college? My 7 year old currently plans to become a NASCAR driver, and I wouldn’t be surprised (or mad) if he took his love of cars and tinkering with things and became a mechanic one day – as long as he’s got the skills to turn it into a profitable career. If he decides not to go to college, I still want him to have access to his money.
Jennifer Dyson
20 May 2020Thanks for your comment. I think a lot of people worry about what would happen if they don’t go to college. There are always other options for the money that was saved! I’m glad you found it helpful!
Amanda Rae
20 May 2020I never knew about this! I wish I had this plan in play when I went to college. I definitely plan to start a savings account for my kids (whenever I have them). I would be financially prepared if they make the decision to go to college. This plan is a great thing to know. Thank you so much for the information!
Kaine
12 Jun 2020This is very useful information. I have been considering setting up a 529 savings plan for my son and this is a quick checklist. I have bookmarked this page for future reference. Thank you.