May and June is the time of year where kids are graduating from high school and college. If you are like me, this gets you thinking about saving for college education.
There are a lot of ways to fund college, but I want to talk about 529 plans. The plans are not for everyone, but they are a great solution for a lot of people. I am a fan of them when they are used in the right circumstances. These plans are a great way to save for education. It does impact financial aid later on, though, so be aware of the differences between a grandparent setting a plan up for the child and a parent. Depending on the person setting up the plan, there can be an impact in future financial aid. Overall, however, 529 plans are a great option.
What happens if your child/grandchild goes out of state to college?
These plans can be found in every state, but you do not need to live in that state in order to have that plan. If you live in Colorado, for example, you can have a Utah plan. You can set up any plan no matter where you live and no matter where your child chooses to go to college. I happen to live in Utah, and the Utah plan, which is called my529, is consistently ranked as one of the top plans in the country. Anyone in the country can set up for Utah’s plan so, do your research and see which state plan will fit your beneficiary (child receiving the funds) best. Again, they the child does not need to go to college in the state where you set up the plan.
What is the basis of the 529 plan?
The basis of a 529 is basically that the beneficiary is one owner. This does not mean that the owner is the only one that can contribute. Anybody can contribute to the plan, which makes this a great gifting option. For example, if you set up a 529 plan for your child, you can take the opportunity at birthdays, Christmas, and other holidays to remind family members that they can contribute. Most plans, especially the Utah plan, make it really easy to send grandparents a link to go online and be able to contribute funds.
What if my child/grandchild chooses not to go to a traditional college?
If your child chooses not to go to a traditional four-year college, they have other options. The funds can be used for a community college, technical school, or a vocational program. They can also be used for graduate school later down the road. Starting in 2018, private funds up to $10,000 per year in K-12 were approved. This means that 529 money can be used for private education in grades K-12 (up to $10,000 per year). This is actually a really big opportunity, especially if there are funds in 529 plans that are not being used.
What if my child decides to opt out of education altogether after high school?
There is an option to move the money to another beneficiary, which is a qualified family member of the beneficiary. The list of qualified family members is huge – it could include siblings, cousins, aunts, uncles, or parents. If the child is older, the funds could also be moved to their spouse or children.
There is an option to pull out the funds. If the funds are withdrawn, however, there would be a ten percent penalty plus the income taxes would be taken from the total amount.
Questions? Reach out!
Check out www.my529.org to see more details about Utah’s 529 plans. Also, feel free to reach out to me and I would be happy to help. Sometimes, just exploring options with a financial advisor is the best way to plan for children’s future.