The Benefits of Starting a 529 College Savings Plan

**Please note that I am not a financial advisor, but a mom with big dreams for her kids, who hopes that one day money will grow on trees, but is trying to plan ahead on the off chance that it never does.  Okay, now you can read this post**

We all have big dreams for our children.  They have dreams for themselves too.  The other day I asked my daughter what she wanted to be when she grows up.  She told me that she wants to be a doctor.  She may be slightly influenced by her Doc McStuffins pull-ups, but it’s kinda cool to think those two steady hands gripping a sippy cup, could be saving lives one day.  She doesn’t know how much these big dreams are going to cost.  Heck, I haven’t run the numbers either, but I envision quite a few commas to the left of that decimal point.  Tuition, books, boarding, computer, food, and on and on.  Take a deep breath.  The good news is there are college savings plan options for everyone.  Yes, even for the tiniest future doctors.  It’s never too early to start a college savings plan for your baby.  Have you looked into the benefits of starting a 529 college savings plan?

Here are the positives of a state 529 Plan:

• All your future scholar needs is a social security number and as little as $25 (for your first contribution)
• Anyone can contribute to your child’s plan (grandparents, aunts, uncles, neighbors) – I like reminding relatives of this on my kid’s birthdays and holidays.
• Funds can be used for what are considered “qualified higher education expenses”.  This includes tuition and fees, books, computers and software, and room and board
• Note: As of January 1, 2018, higher education can include tuition for K-12 schools
• You can change the beneficiary at anytime – if you don’t end up using all of the contributions for one child, you can transfer the remaining balance to a younger child’s account, without penalty.  If there are still unused contributions, do you need any additional career credits?  Ever thought about getting your Masters?  Transfer the balance to yourself!  You can also withdrawal any remaining balance, but you’ll owe federal and state income taxes on the balance, as well as a 10% federal tax penalty on the earnings (not the contributions).
• Each state is different, but you don’t necessarily have to invest in your home state’s plan and you are not confined to getting your higher education in the state where your plan resides.  You’ll have to research each state’s plan for their specific rules.
• What if your future student ends up getting a full ride to the college of their liking?  First off, congratulations Mom!  You must be so proud.  There are exceptions to these balance withdrawal penalties, for situations like this one.  Don’t let this beautiful “what if” scenario deter you from starting to save today!

There are definitely other options to the 529 Plan, like a Roth IRA.  But after opening up a 529 for my own kids, I have to confess, it couldn’t have been easier.  Just a few clicks online and it was ready to go.  You can work with a financial advisor as well.  Just remember that they make money managing your money.  So make sure they are transparent about their fee and commission structure.

Here are some additional articles about 529 Plans (in case you don’t want to take just my word for it):

The Motley Fool: Are You Familiar With 529 Plans?

Saving for College: Intro to 529s

Quick follow-up: My daughter’s new desired occupation is being a Mermaid.  I’m pretty sure growing a fin and developing a way to breathe underwater is still pretty pricey though…and requires some level of higher education.