- Personal Finance»
- Paying for College
Invest In Your Children's Future With A 529 Savings Plan
Investing In Your Children
Whitney Houston, the pop diva of the eighties, struck platinum with the hit song entitled" The Greatest Love Of All". The signature words of the song were, "I believe the children are our future, teach them well, and let them lead the way." Those lines embodied the truth then and still holds truth today. The children are our future, so we should start planning for theirs today. When I think of children, the first thing that comes to mind is schooling, and planning for a college education. Some kids will be fortunate enough to rely on scholarship funding and that's great, but some of us aren't as fortunate as others an will be face with the financial burden of funding your children's college education.
When you think of funding a college education, there are several options that come to mind; financial aid, grants, scholarships and loans. The financial aid process can be very tedious, and even relieving at times; however, the interest rates on loans, and financial aid services can be very expensive. The obligation to repay a financial aid committment can become a financial burden that in some cases can leave some families face with extreme financial hardship. In order to dodge the headache of being financially burdened with college expenses it is necessary to prepare now for your children's education now. My own personal experiences with financial aid prompted me to do research to find out is there actually a simple way to save money for college. In doing research I developed several ideas, but one way that stood out the most was to invest in a 529 Savings Plan.
What Exactly is a 529 Savings Plan
A 529 Savings Plan is an education savings plan. It is operated by a state or educational institution. It is designed to help families set aside funds for future college costs. This is a great plan that was implemented by the Internal Revenue Service, it has been named after section 529 of the Internal Revenue Code which created these types of plans in 1996.
There are several benefits to having a 529 Savings Plan. One of them that's most noted is the fact that the 529 plan can be used to meet costs of college nationwide. In most plan's your choice of school is not affected by the state that the plan was implemented in. For instance, you don't have to attend school in the state that the plan was implemented in because every state has at least one 529 plan. There are two types of 529 plans. Prepaid and savings. The prepaid 529 plan allows you to prepay all or part of the costs of an in-state public college education. They may also be converted for use at private and out of state colleges. The 529 Savings plan works much like a 401k or IRA by investing your contributions in mutual funds or similiar investments. The plan offers several different investment options from which to choose. Your plan will go up and down based on the performance of the particular option chosen.
How Do I Enroll In A 529 Plan
There two basic ways to enroll. One way is through a 529 plan manager, another way is through the use of a financial advisor.
Does having a 529 plan affect my financial aid?
Yes it does affect the amount of financial aid awarded. I can't say whether it's good or bad because there are several issues to be considered. It affects everyone differently. The majority of financial aid is rewarded in the form of loans, meaning this is money to be paid back. However, if you are rewarded less loan money then you have less of a commitment to repay. There is explaination of how it exactly affects you in terms of FAFSA, here @ www.savingforcollege.com.
Securing Your Children's College Education
By now I've described the importance of establishing a method of saving money for your children's college education through the use of the 529 Plan. Whether you choose the prepaid or the savings plan both of them are great investments. You should begin preparation as early as possible because this plan has several options this gives you a chance to see which one works best for you. Although this plan is a form of financial aid, you should also inquire about other programs that may be helpful to the financial security of your child/children's college education. Early preparation and financial literacy is key. Remember he who fails to prepare is preparing for failure.
Eight Great Benefits of the 529 Plan
One benefit of the 529 plan is the federal tax break. Your contributions are not deducted on your federal tax return, however your investments grows tax deferred. This means your distribution for the beneficiary's college cost federally ends up being tax free. Another benefit of the 529 plan is that some states offer tax breaks. Depending on the state interest some offer state income tax deductions, or income exemptions on withdrawals. The third benefit is that the donor retains control of funds. You the donor stay in control of the account; which means u call the shots. The fourth benefit is it's low maintenance. It can be a very simple way to save for college, with the use of several forms and the easy enrollment process, you can make a strong contribution to the beneficiary's future. You can basically relax because the ongoing investment process is handled by the plan not by you. The fifth benefit is it's simplified tax reporting. This means that you won't recieve papers 1099 forms until the year of your first withdrawal. The sixth benefit is it's flexibility. The 529 plan program will allow you to change to a different options within the program. It's also transferrable by state. In some instances you are able to rollover the plan to different states provided that your beneficiary has not rolled over in the prior 12 months time frame. The seventh benefit is that there are no limitations on the amount of funds deposited into the account. The eighth benefit is that there is also no age limit on the beneficiary. So if you are a parent an your considering going back to school then that's cool.