You Haven't Set up a 529 Yet? Do It Now!

Oh those cute and cuddly babies, and challenging toddlers, and sweet children, and pre-teens, and teenagers, oh my! You love your children with all your heart, but it's hard to focus on the future when you have a mortgage or rent, bills, and retirement. One of the easiest ways to prepare for your children's future is to set up a 529 account.

What is a 529?
529 plans, named after Section 529 of the Internal Revenue Code, are tax-advantaged plans which may be used for saving for future higher education expenses (tuition, books, etc.) for a designated beneficiary. In 2017, the Tax Cuts and Jobs Act expanded 529 plans to also include K-12 tuition and expenses. There are typically two types of plans: (1) prepaid plans also known as guaranteed savings plans (GSP); and (2) investment plans. The guaranteed savings plan allows for the purchase of tuition credits to be used in the future at current rates. In the GSP plan, you do not need to worry about the stock market and performance is based on tuition inflation. The investment plan allows you to select underlying funds (stocks, bonds, etc.) from certain stock market investment options. The return is based on the performance of the fund(s) selected and is not guaranteed.  

So you know that you want to set up a 529 but how do you do it?
The easiest way to enroll is to check your state. Most states, if not all, offer one or both of the plans. In Pennsylvania, for example, the 529 GSP and Investment options are available at www.PA529.com. You are not required to set up the 529 account in your state, but there may be some benefits in enrolling in your state, such as state income tax benefits. You may want to check with a tax professional. The online enrollment is easy and only requires information about yourself (address, birth date, social security number), your bank account (account number and routing number), and the beneficiary (name, birthday, and social security number).

Can I only set up one 529 account?
The answer is no. There are no limits on the number of accounts you can set up per child. I actually set up two accounts per child (6 total accounts since I have 3 children). I decided to set up a guaranteed savings plan and an investment plan for each of them. But what if one of the plans is not performing well or if one of my children does not use the money? The 529 plan can be rolled over to another plan for the same or a different beneficiary.

How much should I contribute?
The answer entirely depends on what you are able to contribute. I think the bottom line here is you need to establish a monthly contribution whether that's $10, $25, $50, $100, or more. Look at your budget and commit to a reasonable monthly contribution. No matter how small it seems your children and your future self with thank you.

Ask for contributions from family and friends
At least in Pennsylvania, the 529 accounts allow for direct contributions from family and friends. By selecting a Ugift contribution, family and friends can directly contribute to your kid's college fund. For holidays and birthdays, I say that gifts are not necessary, but if desired, contributions may be made to the child's 529 account and I give the information for contributing to the account. This is especially helpful for the early events (such as baptism) and birthdays where the child really is not aware of gifts. It is also helpful for older children to be appreciative of non-tangible gifts.

So what's stopping you? Do it now. It will take you 10 minutes. Set it and forget it!

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