529s—The Smart Way to Save For College!

529 plans (or education savings plans) work similarly to an IRA, but their funds can only be used for higher education costs. While it was originally limited to post-secondary education costs, it was expanded to cover K-12 education in 2017 and apprenticeship programs in 2019.The cool thing about 529 plans is that they grow tax-deferred, and withdrawals are tax-free if they’re used for qualified education expenses. If you are planning on contributing to your children’s college expenses, a 529 could be the smartest way for you to grow those funds. The key is to start early and contribute regularly (even in small doses).Start with Research529 Plans are administered by each state, so there are 50 different administrators (and options) to choose from. Administration costs and investment options may vary state-by-state, so you’ll want to do your homework before setting up your plan. In some states, the person who funds the account may be eligible for a state tax deduction for their contributions, so you’ll want to look into that as well if you live in a state with income taxes.Set Up the AccountMost states have simplified the process of setting up a 529 plan, but there is some information you’ll want to have handy before you get started. The accounts will require that you identify a beneficiary and select how you want the funds to be invested, so be prepared to do some additional homework and fact-finding.Funding the AccountOnce the account has been set up, you’ll want to fund it so that it can start growing. Some people prefer to set up automatic withdrawals from their paycheck. While it doesn’t seem like much, $10, $20, or $30 deposited into the account every two weeks can add up quickly! If possible, try to max out your contributions early so that you have the added benefit of compound interest.While a 529 plan isn’t for everyone, I have found it to be an effective method of funding education for your children and grandchildren.