Starting a 529 Plan: Simple Steps to Save for Education

Back-to-school season is a natural time to think beyond backpacks and school supplies and start planning for your child’s future. The cost of education can add up quickly, but starting to save early can make a meaningful difference. A 529 plan can be a valuable tool for building education savings while offering tax advantages and flexibility. Let's review six key steps to consider when getting started.

1. Understand How 529 Plans Work
A 529 plan is a tax-advantaged savings account designed to help pay for qualified education expenses. Contributions grow tax-deferred, and withdrawals are generally tax-free when used for qualified expenses.

Depending on the plan and current rules, qualified expenses may include college and vocational school tuition, books, supplies, and certain room and board costs. Some 529 funds can also be used for eligible K-12 expenses.

State rules and benefits vary, so it’s important to understand the specific features of the plan you’re considering.

2. Choose a Plan That Fits Your Goals
You don’t necessarily have to choose your home state’s 529 plan. However, some states offer tax deductions, credits, or other benefits for residents who contribute to their state’s plan. When comparing plans, consider:

• Fees and expenses
• Investment options
• Tax benefits
• Investment performance and risk
• Ease of managing the account

Taking a little time to compare your options can help you choose a plan that fits your family’s needs.

3. Open an Account and Choose a Beneficiary
Opening a 529 account is typically straightforward. You’ll provide information for the account owner and designate a beneficiary, such as your child.

One advantage of 529 plans is their flexibility. If your child doesn’t need all the funds or chooses a different path, you may be able to change the beneficiary to another qualifying family member. This can give you added flexibility as your family’s plans evolve.

4. Choose an Investment Strategy
Once you open an account, you’ll need to decide how to invest your contributions. Many 529 plans offer age-based investment options that automatically become more conservative as the beneficiary gets closer to college age.

You may also have the option to choose your own investment mix. Whichever approach you choose, consider how much time you have to save, your goals, and comfort with investment risk.

5. Contribute Regularly
You don’t have to make a large contribution to get started. Even small, consistent deposits can add up over time, particularly when you start early.

Consider setting up automatic transfers from your bank account to make saving a regular part of your budget. Family and friends may also be able to contribute to a child’s 529 account as a gift, giving loved ones another way to support your child’s future.

6. Review Your Plan Over Time
Your family’s needs, financial situation, and investment goals can change. Make it a habit to review your 529 plan at least once a year to make sure your investment strategy and contributions still make sense.

As your child gets closer to using the funds, you may want to consider whether your investment approach should become more conservative.

Start Planning for the Future
There’s no way to know exactly what your child’s educational journey will look like years from now. A 529 plan can give you a flexible way to prepare while putting your savings to work for a range of qualified education expenses.

As you’re checking off your back-to-school list this year, consider adding one more item: taking a closer look at your child’s education savings. Starting today, even with a small amount, can be an important step toward helping make future education expenses more manageable.

If you’d like to learn more about saving for your child’s education or how a 529 plan may fit into your financial goals, we’re here to help.

Not intended as tax advice. Consult a tax advisor about your individual situation.