FROM THE BLOG

3 Essentials to Keep in Mind when Strategizing Your Child’s 529 Plan

As the summer winds down and kids get ready to head back to school, you might be wondering what the future holds for your child’s education. Whether your child is busy learning their A,B,Cs and 1,2,3s or starting pre-algebra, it’s never too early to think about what paths they might choose as they pursue college and career.

Many parents find confidence in planning for their children’s future educational expenses by setting money aside in accounts specifically for funding college tuition or other vocational training dependent on what their budding artists, accountants, or astronauts aspire to.

One of the most popular college savings plans is the 529 Plan, which allows parents (and grandparents) to set money aside for their children’s future plans. If you’re considering investing in a 529 Plan for your child(ren), you may have some questions. Here are three essential considerations to bear in mind as you put your 529 Plans together.

1. How Much Should I Save?

Before you start investing in your child’s educational future, you should consider how much money your child will actually need from you to pursue their chosen educational path. While there’s no way to tell which vocational path or university your child will choose – or if they’ll even decide to pursue a college education – you can start to think about how your financial contribution will assist them in their educational pursuits.

You want to decide well in advance how much college the “Bank of Mom and Dad” is going to fund. Are you in for a full-ride to any university? Or is it more realistic for Junior to expect a partial ride to a lower-priced state university?

Your financial advisor can provide some insight into forecasting the anticipated costs you’ll face by your student’s likely enrollment date, as well as how to strategize 529 Plans for multiple children.

2. When Should I Start Saving?

As with most other investment vehicles, the longer you have to let your investment grow, the better likelihood that you’ll come within reach of your financial goals But some families don’t have the opportunity to begin saving for their children’s education until their children are a bit older.

When you’re setting money aside in a 529 Plan, you ideally want to have at least 10 years to grow those funds. That means that if you have a seven- or eight-year-old and are just now considering college savings, you’re not too late to the game. For older students, you may still find a 529 Plan worthwhile, but you should consult your financial advisor for personalized direction on when to start putting funds aside for your child’s future needs.

3. Is a 529 Plan the Best Plan for My Family?

While there are benefits to a 529 Plan, they don’t play out the same way for every family. Depending on the state that you live in, your child’s aspirations, and how many students you’re saving for, you may find another investment account, like a brokerage account, to be a better fit.

One drawback to a 529 Plan is that it’s limited to use for qualified educational expenses. If you have a child who would prefer not to go to college and still want to save for their future needs, you may wish to add funds to an account with less restrictions on withdrawal usage. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.

The most important part of planning for your child’s future educational needs is creating a plan that considers your financial goals as they pertain to your family’s situation specifically. Working with a professional financial advisor can help you to determine what these needs are and help you to find a path that allows you to work toward meeting them.

If you’d like to learn more about how a CERTIFIED FINANCIAL PLANNER™ can help you get on the right track for college planning, contact Jacob Sturgill today for an initial meeting about customized college planning.

    Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.