Should I set up a 529 plan for my baby?
Saving for your child’s college tuition, and the expenses that come along with it, is a daunting task for any parent. And if you have more than one scholar-to-be in the family? Yikes.
While many parents know they won’t have to cover the entire sticker price of their child’s college education (financial aid, work-study programs and loans are all options), many choose to put some money away to help pay for this big investment. The sooner you start saving, the better.
One helpful savings option available to new parents is a 529 plan.
What is a 529 plan, and what benefits does it offer?
A 529 plan helps people save for post-secondary education and related expenses. Grad school and vocational training are also included under 529 plans. Websites such as www.pa529.com are great resources when considering a 529.
Are there any downsides?
The downside to a 529 plan is that if you want to take out money for anything other than education expenses, you’ll have to pay tax and a 10 percent penalty on the earnings.
Are there different types of plans?
There are two types of 529 plans:
1) Prepaid plans allow you to pay part or the entire tuition at a specific college, locking in that price regardless of what the cost is when your child actually attends school.
2) Investment plans allow you to choose how you invest your funds, and then you can use that money for educational expenses.
It’s important to note that you don’t have to pick a plan in your state of residence. For example, you can live in New York, choose a plan in Florida and your child can attend school in Washington. It’s best to speak with a financial advisor to pick which plan is right for you.
Who can set up a 529 plan?
Anyone can set up a 529 plan and name anyone as the beneficiary. This can be a child, grandchild, relative, friend or even yourself. You can also change the beneficiary once a year, which means if your child does not go to college, you can transfer the money to someone else or use it on yourself, as long as it’s for educational purposes.
If you want to learn more about 529 plans, contact Northwest Investment Management today at 1-877-300-3454.