If there is anything that we, as Millennials, have learned about money, it’s that we need a lot of it for college.
And that student loans are a pain.
So far, the Millennials have attempted to make sure that their kids do not find themselves in the same situation as their parents—taking on loads of debt to get a degree. Millennials have saved more for their children’s education at this point in their life than any other generation prior to them.
Millennials have learned their lesson.
I am a fan of 529 plans. While there are other good options out there, this is my preferred one. One of the main reasons why I like 529 plans is because of their benefits.
Let’s take a look at a few of the super benefits offered by 529 plans:
- Your total contribution limits are really high. According to the IRS, contributions cannot exceed what you expect to pay for college. States can further define what this means. Limits can vary by state, but those limits get can as high as $500,000.
- Contributions are considered gifts. This means that you can take advantage of the $14,000 gift tax exclusion. This is per individual. Therefore, it’s $28,000 per couple.
- Earnings are tax-free. The earnings on your investment grow tax-free. This means when you take the funds out for college expenses, you do not have to pay taxes on the growth.
- Withdrawals are tax-free. Not only do you not have to pay taxes on the earnings, you don’t have to pay taxes on any part of the withdrawal when used for qualified education expenses. This mimics the tax advantages of a Roth IRA. It’s a great setup.
- You can have multiple plans. You aren’t stuck with one state’s plan. You can choose any state’s 529 plan, even if you don’t live there. In fact, you can choose to have multiple state’s plans simultaneously. So if you live in North Carolina, you can choose to have Alaska, New York, and Utah plans if you desire.
- You can change beneficiaries. If your son Johnny graduates college with some funds still left in his 529 plan, you can change the beneficiary to your daughter Susie. There are some limitations for beneficiary change, but for most, 529s provide more than enough flexibility.
- You can get additional state tax benefits. Some states offer additional benefits if you live in and invest in their plan.
- They are low maintenance. Most of the plans are fairly self-explanatory and pretty “hands off.” You contribute money and the investments are typically handled by an outside firm.
- Everyone can get one. There are no income limitations. Therefore, no one is excluded from setting up a 529 plan for a beneficiary.
College education is expensive. But this does not mean that your child is destined to take on mounds of debt to get a degree. So whether you choose a 529 plan or some other investment vehicle, start saving now.
Because in the blink of an eye, acceptance letters will be arriving to you house.