MONEY HACKS: Ways to Make a 529 Plan Work for You

The cost of college tuition has been rising at a rapid pace, and while I am hopeful we’ll see this untenable “inflation” subside students and families continue to stress about funding higher education. 529 savings plans are a great option to start saving for college tuition such as a 4-year program, community college, or even secondary school (allowed in most recent rules). In this Money Hacks episode, we share some ideas on how to maximize the benefits of a 529 plan while still having flexibility on the account’s beneficiary.

Check out these resources:

• Saving for College
• Three Reasons a 529 Plan is the Ultimate Gift to Give
  

Any money questions you’d like answered? Our Money Hacks series is created from conversations we have with employees, investors, savers, and all people planning for their financial futures. What topics are on your mind for our next episode? Email us here!

Video Transcript:

Hey, this is Alex with AFS 401(k) it's episode number 83 of money hacks. Yesterday was my son's first day of school, this fall preschool. And I know a lot of my friends and colleagues posted pictures on social and send out pictures of their kids' first day of kindergarten, first grade, or junior high, or high school.

And it reminds me of one of the financial topics that we discuss a lot in our one-on-one coaching sessions around saving for higher education or college savings. And there's a number of ways you can do this, but 529 plans from my perspective are one of the best tools to help you save for secondary education because you can do that now in 529 or post-secondary education like a community college, associate's degree, university and the associated costs and expenses that go along with that.

And do that in a consistent and systematic way no different than saving in your 401k or your 403b plan. Nearly every state has its own 529 plans and those states in particular that have some tax benefits you will offer their own 529, like in the state of Virginia or Maryland, where you can get some state tax deduction on contributions of 529s.

It's also a great way to provide some college savings benefits for your loved ones. Not only your own children, if you have children or grandchildren, but nieces, nephews, you can even save in a 529 for yourself. For my nieces and nephews, we've been funding 529s by putting small contributions, like $25 or $30 every birthday or holiday, since they were little and over time, that'll make a big difference to help them with some of that financial burden of going and getting a college degree or, some type of post-secondary type of education or training. My colleague, Allison Rosenberg had a great tip and it's that even when you don't have children yet, and you're planning on having children or you'd like to and you're young and maybe you don't have expenses and, you know, have some extra cash flow you could fund a 529 named yourself as a beneficiary and just in case perhaps you want to go to graduate school or get you to know, some further education, but you can also change that beneficiary to your own children or to nieces and nephews. Or even we had one client I was speaking with last week, who's setting up a 529 for her goddaughter. So great vehicles are not the only way to save for your children or the future but if you're going to want to put money away specifically for some type of higher education or college, the 529 is an awesome vehicle to do that and there's a great website savingforcollege.com with a ton of information on all the different states' plans, the tax benefits, the expenses, how to set up monthly contributions. So, check that out or if you have more questions, please feel free to reach out to us. See you around. Thanks!

Disclosure: The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified higher education expenses. The earnings portion of a non-qualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.