Use a 529 Plan to Save for Your Child's College Education
If you are looking to the future and want to save for your child’s college education a 529 plan may be the answer.
A 529 plan allows you to save and invest money on behalf of a beneficiary for college, K-12 private education, and even apprenticeship program expenses.
The plan functions like an individual retirement account (IRA) where you get tax free growth.
You can pick your investments and allow the value of your account to hopefully appreciate over time.
Withdrawals of gains are tax free and will need to be for qualified higher education expenses (QHEE). QHEE includes tuition, fees, books, classroom equipment, room and board, and even laptops/notebooks.
As a parent all you must do is open a 529 plan savings account at an account administrator and name your child as beneficiary.
As a parent you can contribute as much as you want.
Family and friends can also contribute but are subject to the federal gift tax limit (for 2022 it will be $16,000 but check with your licensed tax professional for tax advice).
With parents, family, and friends contributing a child’s nest egg can be quite substantial by the time they are ready for college!
Contribution limits vary from state to state but in California it is $529,000 (at the time of this writing).
If you are not in California, check with your 529 plan’s administrator for your state’s contribution limit.
You know how much I like Vanguard and they administer these 529 savings plans.
You can review Vanguard’s 529 savings plan here:
https://investor.vanguard.com/accounts-plans/529-plans
With Vanguard, you can choose from their selection of individual 529 plan portfolio or their Target Enrollment Portfolio.
With the Target Enrollment Portfolio, you choose the anticipated education enrollment year and Vanguard takes care of the mix of stocks, bonds, and cash.
What are you waiting for?!
Get started today!
Contact a licensed tax professional as nothing in this article should be considered tax advice.