Updated 07/25/2024 – Saving for your child’s education is something that every parent wants to do, but sometimes give up trying because they can’t find an account that is confusing or costly. 529 plans are easy to use and are tax-deferred, allowing you to save for a child’s education without having to worry about a heavy tax burden when they choose to use the money.
The Basics of a 529 Plan
529 plans are a way of investing in your child’s future that allows them to use the money for almost any educational expense. 529 plans aren’t just for college expenses. The money can be used for any grade level, including K through 12. It can also be used for both apprenticeships and internships for students who are trying to gain on-the-job training. It is based on the same concepts as a 401k savings plan, but it isn’t intended for retirement.
Types of 529 Plans
There are two types of 529 plans. The first is not very common since only a few states and less than 250 private schools offer them. The prepaid tuition plan is useful because it locks in the price of tuition for a specific degree program. This prevents a student from paying a higher price if inflation takes over and causes them to go up.
529 Savings plans are sponsored by the state and give parents an opportunity to save money on their own. Once the money is deposited, the investor determines how it is handled and can even choose a mixture of investments. You can adjust your holdings at any time to ensure that your child has everything they need for school.
Can 529 Plans Be Used for Rent?
A 529 savings plan can be used for on-campus or off-campus housing as long as the cost remains within the limits put in place by the college or university. If you aren’t sure what the limit is, contact your student’s academic advisor. They will help you determine a qualifying amount and give you instructions on how to pay the room and board using the 529 accounts you have set up for that purpose.
Food, Utilities, and Other Expenses
A 529 account can also be used for food and utilities as long as they fall under the category of room and board. If a student lives off-campus, this may be a little more difficult to prove. Keep track of all of your bills that apply as college expenses. You can continue to draw from your 529 accounts without paying taxes until you reach the cap set for students who live on-campus.
Having a 529 account set up for your child will benefit everyone eventually. It benefits them because they don’t have to stress about where the money will be coming from for their education. It’s beneficial for you because of the tax-free benefits that allow you to put more into the account, building its equity much faster.
