My oldest is ready to start high school in the fall and my youngest is going to be in third grade. With three kids, I know that each of them will have their own big dreams and I want to be able to help them along the way to making them come true. College, and maybe even grad school, will likely be part of that path. That’s where a 529 Plan comes in.
College costs are constantly rising and student loan debt can be crippling. My husband and I were lucky enough to come out of college with no debt, and we’ve seen what a jumpstart that gave us financially. It helped us build the kind of security that we want our kids to have, too. So, we’ve been saving for their college education since they were very small. But, even if you are coming to it late in the game, it’s still worth getting started with college savings.
One of the easiest ways to save for college is through a 529 Plan.
What is a 529 Plan?
States throughout the country, including Iowa, have their own college savings plans that have tax benefits under the IRS’s section 529, thus they have creative names like the “Iowa 529 College Savings Plan.” Basically, you’re investing in stocks in hopes of great performance to help your savings grow. It’s a lot like putting money away for retirement, like in a 401k, but instead of taking money out to retire, you use the money when it’s time to pay for your child to go to college.
Here are some of the benefits of a 529 Plan:
- You can receive tax deductions on your federal and state taxes for your contributions.
- You won’t be taxed on the earnings when you withdraw money for college expenses.
- If your child earns a full scholarship, there’s no penalty for withdrawing the money.
- You can start with a deposit of as little as $25.
- Though they are often named for the state that they’re located in (like the Iowa 529 College Savings Plan) there are no requirements for using the money in a particular state or for a particular school.
- Anyone can open an account and make your child the beneficiary – it could be a parent, grandparent, relative, or family friend.
- The money can roll over from child to child in your family. If your oldest happens to be a genius or a phenomenal athlete and receives a full-ride scholarship, you can use the money for another child in your family.
- Your child can use the money at any time in life. If they decide they don’t want to go to college right after high school, it’ll wait until they’re ready.
- It can be used for community colleges, trade schools, four-year colleges, or graduate schools. So, whatever your child is interested in learning, from cosmetology to law school, it can help.
- For the last few years, funds in 529 plans can also be used for K-12 private schools.
Tips to Start Saving for College
Sometimes the hard part is simply figuring out how you manage to save the money in the first place? Here are a few tips that my family uses and that others have shared with me:
- Make it automatic! Let your bank take care of moving the money into your 529 or other college savings. You won’t have the chance to forget to do it or make excuses not to do it. Whatever works in your budget —whether it’s $20 a month or a few $100 per month — you start to feel like you never really had it anyway . . . so you don’t miss it like you would if you had to consciously make the transfer yourself.
- Let relatives help. Do Grandma and Grandpa sometimes send cash gifts? Put some or all into the 529 or other college savings account. Or, when they ask what your kids want for their birthday and you think your house is already overrun with toys, ask for an inexpensive gift so your child has something fun to open and let them know you’d rather be able to put the rest of what they would have spent into your college savings account. If you’ve got tech-savvy relatives who want to help, it can also be as simple as a few clicks with UGift, a program that allows anyone to give directly to your child’s college savings plan.
- When you pay off a loan, like a car payment or a college loan, start putting the amount you used to put into the loan each month into your college savings account.
- When you get reimbursement checks from work for things you’ve already paid for, put that money into the college savings account.
If you have other great tips for how to save for college, share them in the comments!