The majority of the 529 plans come with low minimums and are quite simple and easy to do them yourself online. You can also talk to a professional in finance to help you out.
If you wish to open an account, the requirements are the tax ID and the permanent U.S. address. Keep reading Just For College to learn more about the 529 plan and how to choose the best one for you.
What is a 529 Plan?
The 529 plan is also known legally as the “qualified tuition plan”. This is a saving plan that is also tax-advantaged.
It is mainly designed to pay for educational costs and save money for a beneficiary. These plans can cover educational costs starting kindergarten to grad school.
Originally, it was limited to the costs of post-secondary education but then it was expanded to cover the 2017 K-12 education and the 2019 apprenticeship programs.
There are two major types of 529 plans; prepaid tuition plans and savings plans.
The prepaid tuition plan offers the account holder to pay their college tuition in advance. While the savings plan offers tax-free withdrawals when used for educational expenses that qualify.
How to Choose the Best 529 Plan:
It does not matter if the family is state-resident or not. Any family can invest in any 529 plan. The 529 plans can be used to pay for more than 400 approved international schools and any accredited school in the U.S.
- Consider your home state’s direct-sold 529 plan as a start, if your state offers benefits for its residents and if the state offers a state income tax break.
- Keep in consideration the 529 plans with the highest ratings and the direct-sold 529 plans of low-fee states.
- Even though most families choose an age-based plan, you should filter the 529 plans according to your needs of investment options.
- You should also filter the 529 plans list according to whether you can meet the minimum contribution requirements or not.
- From the remaining 529 plans, choose the 529 plan of your home state if the fees are less than 0.50%. Also if your child is in high school and your state offers a state income tax break.
- In a nutshell, you should choose the 529 plan that offers you both low fees and a high return on your investment.
The majority of states offer many different 529 plans which could include one or more advisor-sold 529 plans and a direct-sold 529 plan. Giving families the opportunity to choose the plan that suits them best.
How Much Can I Contribute?
Unlike 401(k)s and IRAs, 529 plans have no yearly contribution limits. Nevertheless, there are aggregate maximum limits that differ from one plan to another.
Contributions to a 529 plan are limited by federal law to the cost estimate of the beneficiary’s eligible higher education costs.
Those limits are different from one state to another as they can range anywhere from $235,000 to $529,000. This contribution is the amount estimated by the state to be the full expenses of attending expensive schools including the room and textbooks.
In case the balance of your plan is close to the limit, you do not need to be concerned regarding future earnings as the funds will stay in the account with no penalties, however, the family cannot make any contributions in the future except in the case of a market drop that would bring the balance of the account down again.
Does the 529 Plan Affect the Financial Aid?
There is no need to worry about the 529 plan and your financial aid as it has minimal effect on it. In fact, What we observed at Just For College is that it can be more beneficial than you know.
The 529 plan is reported as a parent asset on the FAFSA. And it does not matter if the beneficiary is the student or one of the student’s siblings.
How do I Enroll in a 529 Plan?
To enroll in a state’s 529 plan, you will need to contact the administrator of the plan who runs the 529 plan you wish to enroll in.
Those administrators can be companies, investment firms, or state agencies founded for the purpose of running the 529 plans.
Each state government has control over the administrators of the 529 plans. Your 529 plan administrator will send you the program description and the enrollment forms.
You need to go through the application thoroughly and carefully and make sure to understand the rules of the plan before you decide to enroll.
Also, keep in mind to check the enrollment terms as many states have open enrollments, which means you can enroll at any time you wish. While other states have limited enrollment periods; from October to January, for example.
Before enrolling in the 529 plan, you should look into the objectives of your investment such as the charges, risks, and expenses.
You can find more information about the 529 plans in the official statement of every issuer. You should also check if your state has a 529 plan that can provide citizens with advantageous state tax incentives.
How do I Withdraw from a 529 Plan?
There is more than one way to withdraw from a 529 plan depending on the type of plan. Parents can either fill up a withdrawal request form online, mail the withdrawal request after downloading the form, or can simply make a withdrawal request using the phone.
What Happens to the Unused Money in the 529 Plan?
If your child does not go to college or receives a scholarship, or for any given reason you still have some excess funds, you can either transfer or rollover the funds.
The funds can be transferred from one eligible member to another in the same family or rolled over into different 529 accounts that are eligible for a qualified family member or for the same beneficiary.
The 529 plans have plenty of benefits that cannot be all listed. However, it is something worth looking into and learning more about, the advantages could differ according to your financial situation as well.
