Having a baby can be a shock to your financial system. It was most definitely a shock to ours! As our precious baby girl turns a year old, her college savings account is in the four figures. The saving success we experienced was due in large part to the generosity of others. There are financial institutions and non-profit organizations that assist in direct gift-giving into your baby’s college fund. Our friends and family were able to give directly to her 529 college savings plan account (“529”). A 529 is an education savings plan designed to help families save for future college costs. Skip the noisy toys and fancy outfits on your baby shower registry, and advocate people give a gift that will grow with your little one.
There are many saving vehicles that parents can use to save for college, but 529 plans are normally a better deal for most savers. While both 529 plans and Coverdell Education Savings Accounts have non-deductible contributions with the benefit of tax-free growth for future qualified educational expenses, Coverdell has a yearly contribution limit, and there are income restrictions to owning a Coverdell. Qualifying U.S. Savings Bonds contributions are tax-deferred, but there are also income restrictions, and the only qualifying expenses are tuition and related fees. Unlike Coverdell, 529 plans, do not have income or age restrictions. With 529, the owner isn’t limited to how much money they make, and they can contribute a large amount per beneficially comparatively. Custodial Accounts, known as UGMAs (for the Uniform Gifts to Minors Act), are certainly another option with no contribution limits, but the beneficiary will own the account at 18 or 21 (depending on the state).
Once you’ve decided to open a 529 and know what plan works best for you, there are online resources to help the money start rolling in.
Savingforcollege.com is a great resource for choosing the right savings plan for your future high achiever. It has a variety of information on methods to college saving to understanding financial aid packages. For the best and worst performing 529 plans, for example, you will be able to find that information at savingforcollege.com.
Collegesavings.org also gives great information on college savings methods, such as college cost calculators and comparing 529 plans by state.
Gradsavegifts.org is a non-profit online college savings registry. It also has a free gift-giving service that links your already existing 529 college savings plan account. It also has an easy-to-use social media to help spread the news. A big pro to this registry is that givers can use their debit or credit card, as well as input their bank account information to make a donation. A con is that if a giver uses a credit card, the registry takes the credit or debit card transaction fee out of the donation and leave the child will get the remaining balance. All deposits are processed once a month.
Once you chose a financial institution to contribute to a 529 plan, the plans inherently make it easy for friends and family to contribute directly to the beneficiary’s account. Ask your financial institution for more information.
Even if chronic child care costs are taking much, if not all, of your discretionary funds the first year, there are always ways to start preparing for their future. At an 8 percent college inflation rate, the cost of college doubles every nine years. For us, that means college expenses will be more than three times current rates by her high school graduation year. Save often and early will be the key to providing a bright future for the next generation.
Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 college savings plan.
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