What is 529 Plan

A 529 plan is a tax-advantaged savings financial tool that offers individuals a strategic means to save for educational expenses. Named after Section 529 of the Internal Revenue Code, these plans are offered by states and educational institutions in the United States. They provide a flexible and efficient way to save for education by allowing contributions to grow tax-free, and withdrawals are also tax-free when used for qualified education expenses such as tuition, room and board, books, and other required supplies at eligible institutions. With various investment options catering to different risk appetites, 529 plans have become a popular choice for parents, grandparents, and others looking to secure the financial future of their loved ones through education.

General Information

Regarding the 529, we do it as a family. Generally you will want some money being saved for your children and in my opinion it might as well go there.

General custodial (a taxable account for your kids) account income / investment earnings will tend to be taxed at the parents tax rate, so the 529 tax free (or deferred if removed for unqualified purposes) earnings is helpful. There are some new provisions regarding the use of funds for non college / university level education as well. We assume some level of qualified paid education will be needed. If not, the account has a certain amount of portability. Even if the earnings are pulled out and taxed + penalized, I think the tax deferral on earnings not at the parents bracket is valuable. Practically speaking it is also a nice savings account intended generally for the more distant future. That is my quick analysis, but each household will have some different motivating factors. Also there is generally shorter and longer term investment options.

The 529 plan is great for tax free growth that can be used for education. This was made generally for higher education, but depending on when it is used then there could be some opportunity to use funds for private schools prior to university. These rules are in flux.

There is no immediate tax deduction for funding a 529 and generally a low fee provider such as Fidelity is fine if you want to start one. You can look at different options, expense ratios, and hidden costs.

Here are some random other things that might be of interest to help fund the accounts. Relatives can also fund the account if interested.

You could in theory open also a fund for yourself and then later gift it to an unborn child as well later or an immediate family member (I think).

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