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What is a 529 college savings plan? You’re about to find out and be happy you did.
Putting one student through college can be daunting enough, but what if you have several children you hope to send off to school some day? A 529 college savings plan is one of the best ways to deal with the ever-increasing cost of higher education, and this type of plan can be even more attractive if you have several children approaching their college years.
Many parents assume they will need to set up a separate college savings account for each of their children, but that is not necessarily the case. In fact, the rules of the 529 college savings plan allow parents to include more than one student when setting up the account. This can greatly reduce the complexity of funding a college education.
State Residency and 529 Plans
Some parents believe they can only invest in the 529 plan offered by the state in which they live, but that is not the case. Parents can enroll in the 529 plan of any state they choose, even if it is not their state of residency.
This flexibility makes it easier for parents to shop around for the best 529 plan – the one that best meets their own needs and the needs of their children. It is a good idea to shop carefully and compare costs, since fees can vary greatly from state to state. Since nearly every state in the union now offers at least one such plan, it shouldn’t be hard to find the right 529 for your family. Some states even offer special tax incentives to 529 participants over and above what the Federal government provides. Be sure to factor those additional tax savings into your college funding calculations.
Parents are free to set up a separate 529 plan for each of their children, but they are not obligated to do so. Many parents choose to set up a single 529 plan, which includes the names of all their children. This approach is certainly much simpler, and much easier to manage, than setting up a separate account for each student.
No matter how many college careers you are planning to finance, it is important to review the various types of plans and choose the one that best meets their family’s financial needs.
One of the most popular plans is similar to a 401(k) or IRA. Parents invest their tax-deductible contributions into their favorite 529 plan, then choose a mix of stocks, bonds and other investments. As with any financial investment, the value of the 529 plan will fluctuate based upon the value of its assets (in this case, stocks and bonds). Parents with young children may be comfortable placing most of their 529 plan funds in the stock market, while those with older teens may prefer the stability of cash and short-term bonds.
Parents can also choose prepaid plans, which allow them to prepay the cost of in-state tuition at a public school. This type of plan can be an excellent value, as long as one or more students choose such a school. It is important for parents to discuss the cost of college – along with available funding options – with their children. This type of communication can make choosing a school and paying the bills that much easier.
Whether you have one college tuition bill to fund or several, it is a good idea to get started as early as possible. Experts expect the cost of higher education to keep rising, and an early start is the best way to keep up with these increasing costs.
Did you enjoy reading this article? Sign up for UniversityParent’s weekly eNewsletter for additional tips and advice to help your college student succeed. You can also add to the discussion and get feedback from fellow college parents by joining our College Parents’ Facebook group.
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