6-minute read.

What is a 529 college savings plan and why should millennials care? For those of us who are procreating, or thinking about procreating, the thought of sending our future children to college might be glimmering somewhere in the back of our minds. Sure, college is probably the best four years of your life, but what about the associated cost?

Average cost of tuition at a four year public university

For the 2017-2018 school year.
Resource: Student Loan Hero.

Average cost of a four year private college

If you are thinking of having kids in the future, or already have a little one in tow, consider opening a 529 college savings plan to get ahead of ever-rising tuition.

So what is a 529 college savings plan anyway?

According to Vanguard, a 529 college savings plan is “an investment account that you can use for education savings. The plans are usually sponsored by states and offer great tax benefits.”

What’s really cool about a 529 college savings plan is that the investment grows tax-free. That means, when it comes to actually using the funds for school, withdrawals are not taxed. Score. Depending on which state you live in, you can also use this as a tax deduction. Saving For College reports more than 30 states, including DC, have tax deductions available. California, the state I reside in, currently does not offer a tax deduction. Boo.

Support a future college grad with a 529 college savings plan.
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Who can be a beneficiary of a 529 college savings plan?

Anyone, really. Open one up for your niece or nephew. Open one up for your best friend’s baby. You can even open one up for yourself or your unborn child.

Yes, that’s right.

You can start saving for your far, far future children now. No impregnation required (yet). Just open a 529 college savings plan under your name and change it to your baby’s name once the baby is born.

How you can use 529 college savings plan funds

529 plan funds can be used for qualified tuition expenses. In 2018, Congress passed a law allowing the use of 529 funds towards K-12 costs. Not all states recognize this federal law, so you’ll need to look up your own state to see if you qualify.

Qualified tuition expenses include:

  • Tuition at a college, university, trade or vocational school
  • Room and board
  • Fees
  • Books
  • Supplies
  • Equipment, including computers
  • Internet access and related services
Resource: Vanguard

How to open a 529 college savings plan

I recently opened two 529 college savings plans. One for my brand new nephew (hi, Brooks!) and one for myself. Here’s how I did it:

#1

Researched investment companies that offer 529 plans and state tax deductions.

First, I shopped around by looking at what I consider trustworthy firms. I invest with Vanguard so I looked at their plan first. Their 529 plan is sponsored by the state of Nevada which is perfectly fine for me, since California doesn’t offer a tax deduction. I like the continuity of keeping my retirement accounts and 529 plan under one umbrella. Much easier for me to manage.

For my nephew, I looked at TD Ameritrade. This plan is sponsored by the state of Nebraska which is where my brother-in-law and his wife live. Any contributions they make to this account can be used as a tax deduction.

#2

Looked up applicable fees.

Every investment firm will have management fees, so take heed. TD Ameritrade had fees ranging from 0.49%-1.46% depending on which investment options you choose. Check out the program disclosure statement.

Vanguard has some of the lowest management fees ranging from 0.16%-0.44%. Read the program description.

#3

Verified minimum amounts to open a 529 plan.

TD Ameritrade does not require a contribution minimum which is perfect for any budget. Investing directly with Vanguard proves to be more costly, as the minimum to open a 529 plan is $3,000.

#4

Confirmed ability to have family and friends contribute to the plan.

I really like TD Ameritrade’s share link feature once the 529 college savings plan for my nephew was opened. I can now send the URL to my brother-in-law and in turn, he can pass along to others and have them easily contribute online. Similarly, I can setup gifts with Vanguard and their partnership with Ugift. Vanguard’s instructions to setup Ugift was buried in their disclosure statement, as I had to do some digging to find it. Either way, the ability to have friends and family contribute online is the easiest way to build up your 529 account.

#5

Researched qualified investment options.

Each 529 college savings plan will provide investment options for you to choose from. Most include an age-based portfolio so that as the age of the account grows the level of risk changes. TD Ameritrade provides 17 different investment options (surprisingly, many of them were Vanguard funds) along with age-based portfolios. Vanguard offers 20 individual portfolios of which you can choose up to five. Important to note, in both 529 plans, you can only make changes to the investments twice per calendar year.

#6

Gathered beneficiary’s personal information.

You’ll need date of birth, address, and social security number to start, plus your bank accounting and routing numbers to make your first contribution. If you don’t have your beneficiary’s information, you can always plug in your own information and then change it later.

#7

Opened the account.

In both instances, it was pretty easy to get it opened. I have a “set it and forget it” mentality because these accounts will be growing over the next 18+ years. You can also setup automatic contributions so you can invest on a monthly basis. Let the systems do the work for you!

Why I chose to open a 529 college savings plan for my unborn child

Well, we ain’t getting any younger, folks. My husband and I, we’re future thinkers. Planners. Type A personalities, if you will. When I think about my future, and any subsequent kids involved, I see dollar bills and rising costs of an American education. An education bubble might pop. It might not.

In my opinion, the best way to get ahead of the curve is by opening a 529 college savings plan for my unborn child.

“But Justine, what if you change your mind? What if you decide you don’t want kids? What if you can’t have kids?”

Trust me, the thoughts have stirred in my brain as well. If that’s the case, we can leave the beneficiary under my husband’s name (how it’s currently setup) so he can go back to school for the umpteenth time (just kidding, please don’t do that, hun!). Or we can designate the funds to a friend or family member. Either way, the money will be well spent.

Have you considered opening a 529 plan for your (unborn) child?

Does it seem affordable to do? It might seem crazy to do this while we’re jet setting the globe and enjoying our craft beers living the DINK life, but maybe this will come in handy one day. We will breathe a sigh of relief knowing future generations will not be eaten alive by student loan debt.

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Disclaimer: Justine Nelson is not a licensed financial advisor, but a savvy financial educator who wants to share her personal knowledge. The above references an opinion and is for information and educational purposes only. It is not intended to be investment advice. Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. Any investments, trades, speculations, or decisions made on the basis of any information found on this site, expressed or implied herein, are committed at your own risk, financial or otherwise.
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