Paying for College with a 529 Plan
Paying for college is expensive. The sooner you start saving for it, the better off you will be, and hopefully, the fewer student loans you will have to pay off after college.
So what’s the best way to save for college? Well, you could fill a glass jar with cash and bury it in your backyard. (On a side note, that really is how I saved for my first car. Other than avoiding the fire ant hill near my hiding spot, it was a great idea.) Or, if you still have a few years before you start college, you could invest in a 529 plan.
What is a 529 plan?
A 529 plan is a savings plan for students that is operated by a either a state or educational institution. These plans are designed to allow families or students to set aside money for future college costs. Every state has at least one 529 plan available. These plans vary state by state though, so you’ll need to research your state’s specific plans.
There are two types of 529 plans. The savings-based 529 plan works like a 401K. Your funds are invested in mutual funds and your plan’s balance will fluctuate. You can also start a 529 that is more of a prepaid plan. This allows you to pre-pay your college education expenses.
The best parts of 529 plans are that your contributions are allowed to grow tax-free and they do not affect your eligibility for financial aid opportunities.
The sooner you invest in a 529 plan, the more time it will have to grow and mature. So if you are a senior in high school, I wouldn’t recommend this plan. But if you are in middle school, I’d advise you to talk with your parents about setting up a plan. And if you are a parent of a youngster, definitely check into setting up a plan for your child. It might be one of the best financial decisions you make for paying for college!
Via SavingForCollege.com and The LA Times