College Funding with 529s

Joseph Kubic |

If you’re like so many of our clients, saving for your children’s or grandchildren’s education is a top priority. You may also be wondering the best way to begin. To help, we thought we’d share some insights on 529 accounts and why they’re a great option.

A 529 account is a special kind of investment account that you can use to pay for a wide range of education expenses. Your savings in the plan will grow tax-deferred, and withdrawals are tax-free as long as they go to qualified expenses.

There are two types of 529 plans:

  • Savings plans are similar to Roth IRAs or Roth 401(k)s; you invest your after-tax contributions in investments like mutual funds, and then use that plan account to pay for qualified expenses for colleges and universities, as well as private, public or religious elementary or secondary tuition expenses for K-12 students. They’re the most common kind of 529 plan. 
  • Prepaid tuition plans allow you to prepay for an in-state public school so you can lock in tuition rates for a student who might not actually attend the school for a few years.

529 plans can be used to pay for qualified educational expenses like tuition and fees, books, computers, room and board, and special needs equipment for students attending a college or university. The IRS has also expanded qualified expenses to include K-12 tuition and student loan repayments too.

Note that you can also open a 529 plan for a family member - your children, grandchildren, or another relative. And you can transfer the plan to a different beneficiary if you want, as long as they’re related to you.

Every state offers at least one 529 plan option. You don’t have to invest in your state’s 529 plan, but it might offer extra tax savings if you do. There’s no limit to how much you can invest in a 529 plan every year, but many states cap the total amount you can contribute over a lifetime from $235,000 to $525,000.

Have questions about the best way to set up your 529 account? We’re here to help - just give us a call.


Let’s Get Started