Making the Most of Your 529 Education Plan

Do you have an educational savings plan for your children or grandchildren? With college tuition and housing expenses on a steady incline over the past decade, long-term savings and investments are a critical part of preparing for your children’s futures.

529 Education Plans are tax-deductible funds usually operated by a state or financial institution. They couple the versatility of automated deposits, along with the transfer ability from one beneficiary to another, with tremendous tax benefits that make it easy to build up a college fund. According to a recent study from Investment Company Institute, as of the end of 2016, the combined assets of all 529 Plans has increased over 162 percent since 2008. These assets now add up to $275.1 billion!

Why do it now? “Even if you don't have a lot to spare at the moment, consistent contribution to an education savings account will have significant benefits when your children are ready to start school”, says Chad Waddoups, vice president of investment and insurance services at Mountain America Credit Union. “And the earlier you start, the better!”

Here are a few tips for selecting and making the most of a 529 Plan:

Choose your type
There are two types of 529 Plans. The first one, pre-paid tuition plans, lets you lock in a specific rate and purchase credits for participating colleges and universities. No investing is needed with this plan. Then, there’s college savings plans. Here, you add money into a tax-advantaged account and invest it to pay for eligible higher education expenses. Do some research or talk with an advisor at your financial institution to determine which fund will best meet the fiscal needs of your future graduates.

Shop around
Like any investment fund, most 529 Plans charge a fee to cover operating costs. While some fees are unavoidable, keep in mind that plans managed by investment advisors tend to charge higher fees than those that are state-run. So, be sure you understand the fee structure and investment options before signing on the dotted line.

Avoid unqualified withdrawals
529 Plans are an excellent way to save for future educational expenses—but they are not emergency funds. Early withdrawals will cost you a 10 percent penalty plus taxes on the earnings, so keep adequate savings accessible in case disaster strikes.

Protect your investment
Allocating your funds wisely is critical to the long-term growth of your 529 Plan. Consider the risk level—if you’ve started early, you can afford to be less conservative. Also, plan on adjusting your portfolio annually (or choose a preset portfolio that rebalances based on your child’s age) to ensure your fund will meet your savings goals at each point along the path.

Still wondering if a 529 Plan is the right fit for your financial goals? While you can sign up for one through your home state, speak with a financial advisor at your financial institution first to get the guidance needed to make the best decision for your family.

Mountain America Credit Union has experienced financial advisors that can explain your options and guide you through your investment strategy. Contact us today to set up an appointment.