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529 Investment Plan - Save For College - Beat The Taxman

Updated on August 24, 2012

You and your spouse may have thought in advance about how to pay for your kid’s college education. If so, review the plan and determine whether it is realistic now and is keeping the family on one income. If not, or if you did not make plans for setting up college fund for your child, do not let anxiety take over. The good news is that there are easy options to start saving and investing now for the education of your children. It is not enough to want to help your child be able to pay the college costs and you need a plan to make this really happen. However, putting money into a savings account at your bank or credit union will not earn enough interest to cover the costs. Instead you need to learn more and choose one or many ways to save and invest for your children's college education. Below you will be able to find the best way for saving and investing for your child’s college costs.

Set up a college fund - save for college
Set up a college fund - save for college | Source

529 Investment Plan - Best Savings Plan Sponsored by State University

Savings plans sponsored by the state, also known as 529 plans, are called the kings of the savings plans for college. Why? Well, they offer a strategic investment plan managed by experienced professionals and allow you or any other donor deposit large sums of tax-free money in your child's account where the earnings grow tax free for college costs.

It works like this: You deposit your money in an account funded by the state (in the state in which you reside or any other). The account is supervised by the office of the state treasury or a program manager assigned by the state, usually an investment company. The program manager invests the funds in a variety of stocks, bonds, certificates of deposit and mutual funds.

The younger your child (more time he/she has to get into college), the more aggressive investment plan (which means that the plan likely to invest more aggressively in stocks or stock mutual funds, for example, instead of investing in certificates of deposit or bonds.) The fund manager will transfer your money over time to more conservative investments so that when it comes time to get into college, your money is invested in low risk investments more liquid (high accessibility). This strategy is designed to give the greatest return on money to invest according to the time it is until you have to use their funds.

There are significant benefits of investing in a 529 college plan - most notably that:

  1. With the current changes in tax laws, all investment returns on 529 plan are tax-free, the best way to beat the taxman.
  2. Anyone can contribute to the plan (parents, relatives, friends, grandparents, etc.).
  3. Each recipient (each child who has an account) can receive up to $10,000 per year tax free (the recipients must be US citizens.)
  4. The money can be used for almost any expense related to the university and can be transferred to another brother if your child does eventually go to college or if there is extra money after graduation.
  5. As a custodian of the account, you have complete control over it.

If you stop investing in the plan you choose, you should seriously consider keeping the money there until you need to withdraw funds for college expenses for your child or otherwise you will be charged a penalty for early withdrawal of funds. You can also open another 529 plan in another state and start investing in this plan in addition to what has already invested in the first plan. Most states have no residency requirement to open an account and there is no limit to the number of plans you can invest.

For more info, visit the best college savings plan.

Saving for college
Saving for college | Source


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    • soni2006 profile image

      Rajinder Soni 5 years ago from New Delhi, India

      Thank you so much LillyGrillzit.

    • LillyGrillzit profile image

      Lori J Latimer 6 years ago from The River Valley, Arkansas

      A starfish is a beautiful creature, it was in good contrast to the model's skin. Nice photo. Nice Hub, good writer. :0)

    • soni2006 profile image

      Rajinder Soni 6 years ago from New Delhi, India

      No not mine Lilly. Is someone else. Was is attractive? Thanks for liking this hub and your support dear.

    • LillyGrillzit profile image

      Lori J Latimer 6 years ago from The River Valley, Arkansas

      Was that your Muse? (The Star fish) Sorry for being easily distracted sometimes. Excellent Hub! Voted up and shared.