Saving for a loved one’s college education is no small financial feat. In fact, it can be so expensive that parents take out loans to fund their children’s higher education.
According to data from the Education Data Initiative, student loan debt has increased by nearly $79 billion annually in the last decade. One viable alternative that can save parents from loan debt is a 529 plan.
What Is a 529 Plan?
A 529 plan is a tax-advantaged investment account that can be used to save for college expenses. Funds in the account grow and can be withdrawn tax-free if used for eligible college expenses, like tuition, room and board, and housing. There are two types of 529 plans: prepaid tuition plans and college savings plans.
Prepaid tuition plans allow you to purchase credits at participating colleges at today’s prices, while college savings plans allow you to save for future tuition and other eligible college expenses. Both plan types are sponsored by states or educational institutions and are managed by investment companies.
Here are four ways to start saving with a 529 plan:
1. Set Up Automatic Contributions
One of the best ways to save for and fund a 529 plan is to set up automatic contributions from your checking or savings accounts. Doing this will allow you to automatically invest in the 529 plan on a regular basis, making it easy to stay on track with your savings goals.
2. Utilize Your Tax Refund
If you’re expecting a tax refund this year (or any year for that matter), consider using some or all of it to start or add to your 529 plan. By investing your tax refund into a 529 plan, you can potentially grow your account balance faster and take advantage of the tax benefits. Plus, you’ll have greater peace of mind knowing you’re one step closer to finding your child’s higher education.
3. Take Advantage of Financial Windfalls
Say you earned some unexpected money, such as a work bonus or even a birthday gift, from time to time and want to put it to good use. When receiving such a windfall, redirect that money into your 529 plan. This will help you to grow your savings more quickly than if you were only making regular monthly contributions. Plus, it’s a great way to make use of money that you would otherwise be tempted to spend. Additionally, if you have money sitting in a savings account earning little interest or some spare cash just lying around, consider investing it in a 529 plan. The money will have the potential to grow much more than it would in a savings account.
4. 529 Gift Cards
You can never start too early planning gifts for birthdays and the holiday season. To show the loved ones in your life that you’re focused on their future success, consider gifting them a 529 plan gift card. Indeed, many 529 plans offer gift cards that can be used to make contributions directly to the plan.
Getting Ahead of College Debt with a 529 Plan
As you can see, 529 plans are a great and advantageous way to save for college. There are many different ways to start saving with a 529 plan, and the best options will vary depending on your individual circumstances. Whichever method you choose, 529 plans offer a great way to save for your child’s future and significantly reduce or even eliminate any potential financial debt.