529 plans are set up at the state level.
As the years go on, college education continues to get more expensive. A 529 plan is a special kind of investment account that allows you to save and invest money for a child's education. 529 plans offer tax-free earning; you can also withdraw money from them tax-free to pay for higher education expenses. People typically use 529 plans to save for a college education, but some 529 plans will allow you to save for K-12 public, private, religious school tuition, or apprenticeship programs.
Here are some steps you can take to set up a 529 plan:
- Identify which 529 plan you'd like to apply for. 529 are typically set up at the state level, meaning you'll want to research plans in your state of residence to identify whether it will be a good fit for your personal financial situation. Additionally, some private colleges offer prepaid 529 plans.
- Enroll through the 529 plan's website. Typically, a 529 plan application will ask you for the name of the account owner (who "owns" the account, such as a parent or guardian), the name of the beneficiary (the student benefitting from the account), and personal information such as mailing addresses, email addresses, birth dates and social security numbers (SSN) of the account owner and beneficiary.
- Fund your 529 plan and choose investments. You can deposit money into your account electronically or via check––this is up to the owner's discretion. You can set up automatic contributions as well. Some states and plans require minimums, so be sure to check any regulations when you are setting up your plan. You'll also need to choose investments for the plan; you can change your investment strategy twice a year. We recommend working directly with an accountant to figure out which strategy will be best for you.
- Learn your state's tax implications. The earnings you make through a 529 plan grow tax-free at the federal level, and are not taxed when you take out money to pay for college. Tax-free withdrawals may include up to $10K in tuition expenses. Currently, over 30 states offer income tax deductions or tax credits for contributions you make to your 529 plan. Research your state to learn more.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.