When they’re young, children dream about becoming doctors, artists, teachers, veterinarians, and many other things. But in order for those dreams to come true and for kids to actually become professionals, it’s important for them to attend and finish college.
A good college education can lead to that dream career. Though it’s a major investment, there are flexible payment plans that can help.
Known as the “College Savings Plan,” 529 Plans let you start investing early for your children’s future college career. These plans are generally sponsored by the state, state agencies or educational institutions.
There are two types of 529 Plans:
1. Prepaid tuition plans. Also called “guaranteed savings plans” in some states, this plan locks in future tuition rates at public institutions. Some private universities also offer similar plans.
2. College savings plan. This one is similar to a 401K retirement account, but the money you invest is only used to pay for your child’s education. You can choose the amount (free of taxes) to be deducted from each paycheck. The amount saved will be used to pay for college when the time comes, or it can be used for related expenses, such as housing, books or school supplies.
To open a 529 Plan, contact your state’s program administrator.
Depending on your choice, your 529 Plan will let you:
- Select a plan regardless of your income or age of your children.
- Transfer your plan from one state to another. You can use this online tool to compare state plans.
- Have control of your money and manage it the way you want.
- Allow anyone to contribute to the savings plan, whether it’s a family member or friend.
- Transfer your plan to help someone else pay for school.
529 Plans are tax-free, as long as the money is used to pay for college. If, for any reason, you decide to use the savings for something else, you can withdraw the money as long as you pay the taxes due.
Use the College Savings Calculator to figure out the amount you must invest each month to cover all your child’s educational costs. The budget calculator will help you compare school expenses against your income and financial aid.