By Lauren Caggiano
Whether it’s funding your own advanced education or that of a relative, a 529 savings plan can be a vehicle by which to provide for future expenses. And a new year can mean the chance to start fresh with your finances.
But what exactly is a 529 plan and how can it be helpful in the long run for investors and their beneficiaries? In simple terms, a 529 plan is a college savings plan that offers tax and financial aid benefits. 529 plans may also be used to save and invest for K-12 tuition in addition to college costs.
Whether you open an open account now or continue making contributions to an existing one, there’s incentive to do so.
“A 529 (account) is really interesting, because it’s designed to be really flexible,” said Matt Henry, CFA, who works in the private advisory division of STAR Financial Bank. For example, you can name any child at any age, as long as they have a social security number. And you don’t even have to be a family member of the child to do so.”
Another layer of flexibility built in by the government is the fact that you can set up an account to finance your own educational pursuits that fall under the purview of academic coursework and room and board. And if several years down the road, you want to name a child as the beneficiary instead, you can do that with the proper paperwork.
Savers also might be surprised to know there’s no minimum contribution necessary to start the account, according to Henry. You could start an account with $10 and build from there.
What matters more than how much you contribute is perhaps the fact that you do, added Henry’s colleague and private banker, Brittainy Chaffee. The cadence will depend on your budget and personal comfort level. She chooses to contribute on a monthly basis to three accounts set up in her nephews’ names, which means reducing the burden of their future educational expenses. With automated debits, it’s easy and relatively painless. Her parents do the same, so the impact is multiplied.
Whether you do this on your behalf or to benefit a family member or friend, Chaffee said getting in the habit of saving, whatever the occasion, will serve you well.
“Most Americans don’t have an emergency fund or a savings account at all,” she said. “Unfortunately, especially in times like now, where a lot of people are laid off, or a situation happens, they revert to using a credit card to pay for those expenses. And then the interest rates charged on the credit cards are just outrageous because it compounds and goes in the opposite way of what you would want for paying down that debt.”
If, however, you wish to be proactive and think of the future, Chaffee and Henry offer an invitation. STAR’s investment team can help set up the account. It just takes a desire to plan for the future and a few minutes of your time.