What is the best way to save for my kids’ future?
A 529 plan is the best way to save for your kids, hands down! It is an investment account designed for education, which grows tax-free over the course of your child's lifetime. When you compare it to other types of accounts, it’s impossible to beat the tax savings, parental control, high contribution limits, and financial aid treatment of a tax-advantaged 529 college savings plan. Here are the benefits, to name a few:
Gift Tax Benefits
Minimal effect on Financial Aid eligibility
Contributions from friends and family
Investment Benefits - average annual returns of 6-7% (based on the historical data), which is greater than tuition inflation.
Tax benefits - earnings grow on the tax-deferred basis and qualifying educational expenses are tax-free.
Gift Tax Benefits - your contribution to a 529 plan account are treated as gifts to the beneficiary for the purposes of the federal gift tax.
Parental Control - unlike other types of investment accounts designed for children such as UTMA/ UGMA, you retain control of the account. You, not the beneficiary, decide when to take distributions and for what purpose.
Asset Protection - qualifying assets in 529 plans are protected in bankruptcy. Low Cost - for most 529 plans, the underlying fund expenses are very low, especially compared to other alternatives, such as life insurance, which comes with extremely high costs and hidden broker commissions.
Low Cost - for most 529 plans, the underlying fund expenses are very low, especially compared to other alternatives, such as life insurance, which comes with extremely high costs and hidden broker commissions.
Minimal effect on Financial Aid eligibility - A 529 is considered a parental asset with FAFSA, so it only affects your Expected Family Contribution (EFC) by, at most, 5.64% of your 529 assets. Compared to the 20% on student assets like UTMA and UGMA, this is a much better option.
Contributions from friends and family - your friends and family can contribute to your child’s college savings account, helping to accelerate the growth of your savings.