Saving for your Kids College? Look into a 539 Plan
A 529 plan is any college-savings plan set up under Internal Revenue Code 26 Section 529. The tax code allows for tax-advantaged college savings plans administered by state governments. These plans are usually tax-deferred, meaning that the money put into these accounts is not taxed extra and the money taken out is usually not taxed if used for higher education expenses. Each state has a different type of 529 plan available. 529 plans can be set up in two different ways: pre-pay tuition “credits” for in-state colleges or pure dollar-amount investment savings. A 529 savings plan is, simply put, a safe way to invest money for future college expenses. 529 plans were set up as a way for parents to plan for future college expenses, but 529 plans can also be a great gift for nieces, nephews or other children in your life.
Setting up a 529 plan
To set up a 529 plan, first research two states – the state you live in and the state your intended beneficiary lives in. If your intended recipient is still at least a few years away from college, you can set up a 529 plan in just about any state, because it can be rolled over into any other state once per year without penalty. Most 529 plans have a setup fee and a minimum investment of some kind. Contact the 529 plan administration program to get enrollment forms, fill them out, and send them in with the fees and initial investment. You will need the beneficiary’s legal name and social security number and the same information for the account administrator.
Who to put on the plan
It is possible to set up a 529 plan with any beneficiary and any owner. A 529 plan is considered an asset if you are listed as the owner of the account. You can set up an account with any other individual listed as the owner, and anyone, including you, can continue contributing to the 529 plan, even if it is in someone else’s name. If the beneficiary is very young, then you will need to put an administrator name on the account.
In a few simple steps
- Research and decide on which state to set up the 529 plan in.
- Name a beneficiary of the plan and a plan administrator.
- Pay the 529 setup fee and make the initial minimum investment.
- Compile the paperwork on the 529 plan, tie a ribbon around it, and hand it to the administrator or beneficiary of the account.