Congratulations! You’re either expecting your new bundle of joy in the upcoming months, or you’ve recently had a new addition to your family. In either case, chances are you’ve thought of your child’s future and dreamt of hugging them in their cap and gown as they graduate from a top level college.
College planning often begins at birth for families, when the pressures of time and interest rates can be applied to maximize how much the family can save for a future college education. Whether you yourself went to college, or you simply recognize that you want the opportunity to be available to your child, savings started early are a significant boost.
The most common vehicle for college savings are 529 plans. Simply put, 529 plans are the federal government’s way of allowing you to save your money and allow it to grow tax-free for your child’s education, and ensuring that funds that accumulate over time are tax-free when withdrawn. Best of all, most states (including North Carolina) give you an annual tax credit which would reduce your taxes owing when you make regular contributions.
Who Can Enroll?
Any relative of a child can enroll on their behalf. Often times, grandparents opt to enroll their new grandkids in 529 plans, helping the parents with long-term savings needs and also drawing their own tax benefits on retirement incomes.
There are two things that 529 contributors should be wary of:
529 plans are a very cost-effective and simple way for parents to prepare for their child’s education. The earlier you start, the better you and your child will be prepared. And on 12 or years or so, I’ll forward to helping him or her with their college applications needs.