Saving for college takes a good deal of planning. One popular tool used to achieve this goal is a 529 plan. These plans are basically savings accounts with funds used to cover various educational expenses.
These plans offer a number of benefits, including tax savings. Those who wish to use these financial tools are wise to take various factors into consideration to put together the strategy that would work best for their financial interests. Two considerations to keep in mind when researching which 529 plan is right for your family include:
- Age of the child. It is important to have an approximate timeline for use of the funds. 529 plans are generally structured to begin with risky investments and shift to a more conservative approach as the child ages. Financial planners often advise a more conservative plan if the creator plans to use the funds in the near future.
- Cost of the plan. There are fees associated with these plans. Costs can include enrollment fees, maintenance fees and fund expenses. Get this information before moving forward with an investment.
As discussed in a previous post, the new tax law will impact these plans. Essentially, the new law expands the plan offerings to cover not just higher levels of education but also certain expenses incurred when paying for K-12 educational costs.
Families should also take into consideration the fact that there is not just one type of 529 plan. Those who are looking to purchase one of these plans are not confined to the plans offered within their own state. Research the plans that are available throughout the country to find the one with the best strategy for your family.
As with any financial tool that offers tax savings, a misstep could result in issues with the Internal Revenue Service (IRS). Those who are contacted by the agency about their tax filings, in regards to 529 plans or any other tax issue, are wise to seek legal counsel to better ensure their interests are protected.