Back-to-School season is a great reminder of the importance of preparing financially for your child’s higher education. While school supply lists and new school clothes may be topmost on your mind right now, this is also the best time to be planning for the long-term. One option to consider is a 529 College Savings Plan - an education savings plan designed to help you set aside funds for future college costs. It might be a little overwhelming to think about, so we’ve broken it down for you.
What is a 529 Plan?
A 529 plan is for education savings, just like a 401(K) plan is for retirement savings. They’re called “529” plans because they’re authorized by Section 529 of the Internal Revenue Code. These plans are state-sponsored, so residents of any state can invest in their state’s 529 plans.
Two types of 529 plans
Georgia has two types of 529 plans: Savings and Prepaid. Savings Plans work like a 401(K) or an IRA by investing your contributions in mutual funds or other similar investments. The plan will offer different investment options and you can choose based on your preference. Savings Plans cover tuition, mandatory fees, books, supplies and some room and board costs.
Prepaid Plans allow you to pre-pay all or part of the costs of an in-state public college education. Most plans are designed to cover tuition and fees, and some may include housing costs. You can take a look at Georgia’s Path2College 529 Plan Comparison
to see which plan might work best for your family.
How do plans vary?
529 plans vary in a number of ways, including possible fees to open the account, maintain the account and tax treatments. An important item to note is that in Georgia there is no annual limit on contributions. Some plans may put a cap on contributions, but allow interest earnings to continue to grow. A Delta Community Credit Union representative can help you understand your options and choose the right one.
Who can set up the plan?
Anyone with a Social Security Number or a Federal Taxpayer Identification Number who is a U.S. citizen or resident alien can open an account and contribute in Georgia on behalf of any beneficiary. That means grandparents, aunts, uncles –virtually anyone- may set up accounts for children at an early age, which is the best time to do it! Whoever sets up the account will be the custodian, and will control the funds until the earnings are withdrawn. Additionally, anyone can contribute to the plan, so relatives and friends can give the gift of higher education for birthdays or holidays.
What happens if the funds aren’t used?
529 Plans are easily transferred to a different beneficiary, without penalty. For example, if your oldest child gets a scholarship, your second child can use those funds. However, funds in 529 Plans generally must be used for post-secondary education. You’ll need to read the complete terms of the program for actual limitations on use.
Everyone is eligible to be a beneficiary of a 529 Plan, and they’re easily manageable. Georgia’s 529 can even be managed online. But you have to take that first step to set it up, and speaking with a Delta Community Credit Union investment representative is a great place to start.
Article submitted by Sharon