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If you don’t make enough to make your child a trust fund baby, you can still set your child up for financial stability. College leaves many adults in debt for decades, but a 529 plan can save your child from the pitfall of student loan debt.
What’s A 529 Plan?
A 529 plan is a high interest bearing college savings account. Automatic deductions are taken out of the parents’ paychecks after taxes have already been deducted. The money goes into a tax-free savings account where it earns high interest because it is invested in the stock market.
When the child comes of age, the money can be withdrawn for college-related expenses. These include things like tuition, books, computer, internet, and room and board. Some costs, like that of a car, are considered ineligible and cannot be paid for under the 529 plan.
A Few Considerations
The money saved through a 529 plan can be divided between multiple children. Each child can have as much as necessary to cover eligible expenses and is only limited by the total available in the savings account. Some plans can be used to pay for private school before college.
The money can only be used to fund education at a college or university. Community college is acceptable, but private vocational schools don’t apply. If your child wants to become a web developer through a ten-week boot camp, for example, you can’t fund this endeavor with 529 monies. To use 529 savings for anything other than eligible college expenses, you have to pay a 10% penalty.
Is It For You?
A 529 plan is a drain on monthly income, so it may not be feasible for every family.