A 529 college savings plan is a good idea. Putting money away now for education helps fight against growing educational costs in the future. With a 529, growth and earnings on it are tax-free as long as they are used for educational purposes. In addition, this account is also treated favorably when student financial aid is determined.
What is a 529 college savings plan?
A 529 plan creates a way you can save for a child’s education in a way that grants you maximum benefits on savings and no limits on the amount you can contribute. If you can save about one-third of the cost of college, your grandchild should be able to attend. Try to find a direct-sold plan, not through a financial counselor, that has state tax benefits. There are other plans out there, but none have the benefits of a 529 plan.
Should you fund a 529 now or later?
A 529 is best started early because money grows and compounds over the long term. Still, money placed in it even a year or two before starting college helps. You might think of starting the plan now and contribute to it while you are alive so that it can build faster. The best plan may be an automatic withdrawal from your account every month.
A gift in an estate plan is also wonderful. Look over this bequest every three to five years to check in on your grandchild’s educational plans and see how college costs are changing. You may also live to see your grandchildren enter college. After that point, starting a new 529 in a will is an unhelpful idea. You may want to shift the money into another plan.
Whenever you give, it’s important to explore the age and enrollment date models. These will show you the impact of money you contribute now or later compared to college tuition forecasts. Money for education will benefit your grandchildren whenever they have access to it, so you may want to consult an attorney and tax planner to learn more.