“If a man empties his purse into his head, no one can take it from him. An investment in knowledge always pays the highest return.”
Benjamin Franklin
The 529 Plan is an educational savings plan
You love your kids and want to see them succeed far into the future. With the rise in college tuition, we as fathers need to stay in front of forthcoming expenses more than ever. If we do this, we can better arm our children with the education needed to succeed in this crazy mixed up world. And so, the 529.
Originated in Michigan in the ‘80s, the 529 college savings plan broke ground before the federal government included the tax-advantaged investment vehicle as part of the Small Business Jobs Protection Act in 1996. The plan is named after section 529 of the Internal Revenue Code 26 U.S.C. § 529. Here’s the gist: the 529 plan grows tax-free. In the future, you can make withdrawals from the 529 plan without paying taxes. That is, of course, when you use the money for qualified educational expenses.
The plan is designed to encourage saving for future higher education expenses of a designated beneficiary. The 529 plan should be a part of your family’s financial planning.
What are the qualified educational expenses? These are some of the ways to use 529 funds:
- K-12 and college tuition and fees
- Books and supplies
- Room and Board
- Computers and software
- Special needs equipment
- Student loans
- SavingForCollege.com has a killer summary, too
Almost every U.S. state has their own 529 plan (or multiple plans). State residents can open an account online for free. A financial advisor isn’t necessary. Although accounts require a selected beneficiary, the account can be rolled over to another beneficiary, if necessary.
Account holders may contribute up to $15,000 per year as part of the annual gift tax exclusion. Almost every major brokerage has a tax calculator, from Vanguard to Schwab to Merrill.
Check out the Money Moves to Make for Your Kids post for more on 529s and other stuff you can do to set you kids on a great track to educational success.
