Money saved in a 529 college savings plan can be invested to grow tax-free over the years and then be withdrawn and used tax-free to pay for any college in any state.
. A reason to choose the plan of the state where you reside is if it offers a tax deduction for some of your contributions.Some states offer both an “investment” plan and a prepaid tuition plan. Stick with the investment type plan, since prepaid tuition plans limit choices to in-state schools and ultimate payouts may depend on availability of state funds.
Most states offer investment-type plans that are sold directly on their website or through financial services firms. The latter can have higher up-front and ongoing fees for essentially the same investments. Go directly to the plan website to open your account.The 529 investment plans offer choices — typically an age-based plan that invests more aggressively for younger children and moves to more conservative choices as college nears. Or you may have a choice of mutual funds.
But you can easily start small. Most state plans allow you to set up an account with as little as $25 and subsequent contributions of $15. They also help you set up automatic withdrawal plans from your checking account to keep the fund growing. And anyone — parent, grandparent or friends — can make contributions to the plan for birthday and holiday gifts.The new tax law changes mean a parent or grandparent can open the account with the same impact on financial aid.
But under the SECURE 2.0 Act, starting in 2024, accounts that have been held at least 15 years can be rolled over to a Roth IRA for the owner or beneficiary, subject to the annual contribution limits and with a maximum of $35,000. However, you cannot roll over any contributions made in the last five years.Start saving for college now in a 529 plan. Time is money. And that’s The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at
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