A 529 plan is an investment account that offers tax-free earnings growth and tax-free withdrawals when the funds are used to pay for qualified educational expenses. This generally applies to college expenses such as tuition, books, and other fees, though can also be used for K-12 school tuition.
The reasons below are what makes a 529 plan worth it to us. There are some people that are scared of putting money into a college savings account.
The ability to provide family or friends the assurance that their generous gift will go into an account specifically for college education is the biggest benefit of a 529 in my opinion.
Most 529 plans also allow for direct deposit payroll deductions from your employer. We personally put $50 every paycheck into each of our kids’ college fund. While this doesn’t seem like much and likely won’t cover their college expenses, even these small contributions can add up to big dollars over time.
The nuances between the tax benefits of 529 plans can get complicated. Be sure to have a conversation with an accredited financial advisor or do your own research to find out which will provide the most benefit to you.
When you put your money into a 529 account you can rest assured that money will not be taxed when you withdraw for qualified education-related expenses. This is a significant benefit as the growth on earnings can add by the time you’re ready to ship your kid off to college.