How to invest in a 529 plan
College can be one of the most expensive time in your child's life. With increasing tuition, expensive textbooks and school fees, you may see your checking account take a major hit if you do not save in the correct manner. Starting a savings account or applying for grants are a few ways you can help fund your children's educational future, but you may want to look into starting a 529 plan.
A 529 savings plan will allow you to invest money into an account that will then grow over time. If you start this account early, you could see the monetary value grow exponentially over the years, which can make paying for college easier. Plus, this plan offers several tax breaks that can come in handy. Starting one of these accounts is very common, but it is important to understand the rules and regulations that go along with it.
Like any type of savings plan, a 529 account allows you to choose two different options for saving. These are the two main 529 plans:
Investment Plan: This account involves you investing money in bonds, mutual funds and stocks. By putting your money into any of these plans, you will see your investment grow over time. This is a very common choice, but be forewarned that your investment will only do as well as the market dictates.
Prepaid Tuition Plan: If you have already decided on the university where you will be sending your children, this plan is for you. This 529 plan allows you to pay for school expenses at a fixed rate. This choice may be beneficial if tuition and other fees start to rise.
These options can help pay your children's college costs, but be aware that you are only allowed to use the funds to purchase school-related expenses. If you use them for any other purposes, you could suffer tax implications and fees.
Starting a 529 plan for your kids will not only help ease the stress of paying for their college tuition, but it will also provide you with several tax breaks. Even though you will not be able to deduct any of the investment on your tax return, this plan is tax-deferred.
Several states also offer their own benefits for these types of plans. Some of these include upfront deductions and exemption on withdrawals. Every state has their own rules, so be sure to do research so you can use it to your maximum benefit.
Although a 529 savings plan is a very hands-off type of investment, there are still several restrictions that go along with it. If you choose to withdraw the savings for expenses that are not related to college, not only will you be charged a fee, but you will also lose the tax breaks.
Another restriction is not being able to change your plan often. Although you are not forbidden to change it, you are only allowed to alter your investment once a year. This plan can pay off over time when you are trying to save money for your kids, but it can be a little expensive at the beginning. When signing up, you will be charged enrollment and annual maintenance fees. These charges won't set you too far back, but make sure you have a little extra stored away in order to pay for them.
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