Saving for college can be a very overwhelming journey.
Whether you’re a new parent who’s looking to start saving for their little one’s future, an adult who’s seeking help in furthering their education, or just someone who knows they will need some financial support for education purposes in the future, you’ve come to the right place!
There are, of course, many different paths you can take to save for your or a loved one’s education.
However, if you’re serious about getting the most out of your options, you’ll want to go with a 529 plan.
Maybe you’re thinking, “I’ve heard of a 529 plan, but I’m not sure what they entail”.
If that’s the case, take peace in knowing you are not alone. In fact, most people don’t exactly understand how these kinds of plans work and what all goes into making them run in the most efficient way for you.
So, do you know how much to save in a 529 plan? Read on to learn more.
What Is A 529 Plan?
Great question! These plans are governed by the specific state in which you live or choose to use.
The purpose of the 529 plans is to help you save for future college expenses including but not limited to housing, meal plans, books, and, of course, tuition. These plans often come with tax advantages and other incentives to make saving for college a more straightforward process.
When this sort of plan is taken out, a beneficiary is chosen and will receive the funds after a period where a parent, guardian, or another person(s) contribute to the account.
One of the benefits of taking out a 529 plan is that earnings are generally not subject to federal or state tax when they are used for the necessary college expenses as stated above.
You should know, however, that contributions to a 529 plan are not deductible.
There are two different kinds of 529 plans- savings plans and prepaid tuition plans. Each is unique depending on your state so you’ll want to check out the details for yourself to get a more comprehensive overview.
What Are The Limits Of A 529 Plan?
Even though a 529 plan may sound like the perfect choice for you, you’ll want to take into account the various limits associated with these kinds of plans.
The most significant restriction of these plans that you should take into account would be your maximum contribution for each year.
In fact, there is a maximum number of funds you can contribute to a 529 plan.
The maximum amount you can provide has to do with your marital status and what state you are living in/using for the plan.
You may be surprised to learn you don’t have to use the plan of the state in which you live. However, there can be some serious benefits to doing so, so you’ll want to check out your home state before choosing any other.
The maximum amount you can contribute can be as high as $380,000 depending on your state. While this is true, to avoid gift tax consequences, single taxpayers are only allowed to contribute $14,000 in one year, or they can choose to pay a lump sum of $70,000 to cover a full five years.
If you’re married, however, you and your spouse can pay as much as $28,000 per year or $140,000 for the five year period.
What Goals Should I Set?
If you’re starting to save, you may be stuck wondering how to make your long-term savings plan a reality.
I’ve compiled some excellent ways to make your dream come true!
- Put any gift money from loved ones or friends (from birthdays, graduations, etc.) directly into the 529 plan. This is a fantastic way to build up your plan!
- Save according to your child’s age. For instance:
- $100 per month from birth to age five
- $300 per month from age five to age ten
- $500 per month from age ten to eighteen
- Cut down on unnecessary costs right now!
Obviously, this number can be customized depending on your income and how much you need to save.
Check this link to get a better idea of how much you should be saving in the long run.
Now that you know a little more about 529 plans, I hope you’ll consider using this option for any future educational expenses.
Take a look at your state’s specific guidelines and let me know if you decide to go with your home state or another one altogether.
I’d be curious to know what options work best for you and your family!
YOUR TURN: Have you tried a 529 plan before? Let me know in the comments below!
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