A Denver Family's Adventure Through The Ups And Downs of Life

Tuesday, January 12, 2010

Sam Has a 529 College Savings Account

I went online on Sunday night and started a 529 College Savings Account for Sam. We put in an initial bulk investment, but we are going to put money in every paycheck.

We are also going to allow others to invest in Sam's college plan. This can be one of the most important gifts our child ever receives — the gift of education.

Tax-advantaged 529 plans have exploded in popularity in recent years, becoming the college-savings vehicle of choice for many parents. In a 529 plan, savers put after-tax dollars into an account that typically offers a wide range of mutual funds. Distributions and earnings are tax-free, as long as they’re used for higher education. Investors can invest in any plan, although they may get an additional state tax break if they invest in their own state’s plans.

The Wall Street Journal had an informative article a few years ago about the 529 college-savings plans and how best to take advantage of them when saving for the college educations of your progeny. The 529 plans were a bit murky for a few years—confusion as well as unsettling rumors about ‘bad’ 529 plans that would end up being more of a hindrance than a help. Jane J. Kim has written an excellent article about the whole concept of the 529, how they work, why they make economic sense, which states have the better versions and which have the plans to be avoided, and why implementing an out-of-state plan can still work to your advantage (even after taxes). For us, the in-state option had the best tax advantages. Read up and start saving based on your investment goals.

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