8 Ways To Make A 529 College Savings Plan Work For You

The 529 plan is an easy and convenient way for parents to start saving for their children's education. These are tax-advantaged accounts that can be used to cover educational expenses. While the details vary from state to state, here's how to make 529 plans work for you.

#1 Do your research.

The features and benefits of 529 plans vary from state to state. This is great news for you because you can invest in a 529 plan in any state. Take the time to understand how each state's 529 plans work. Choose a plan that offers the most income tax rebates or tax credits for 529 contributions.

#2 Compare the fees for 529 different plans.

One way to maximize the net return on your investment is to reduce expenses. With this in mind, look for plans that offer the lowest fees.

#3 Keep your short- and long-term financial goals in mind.

Each family's financial situation is unique and so are their long-term financial goals. Consider all of these before deciding how much to put into a 529 plan. Some plans allow you to collect an initial lump sum. You can then increase the cap each time you receive a cash gift or reward.

#4 Schedule regular monthly contributions

It's not mandatory, but regular monthly contributions can help you stick to your savings goals. The good news is that the minimum contribution requirement is very affordable. It varies from plan to plan but can run as high as $10 to $15. Find a plan that works for you in terms of minimal contributions. Subscribing to an automatic investment plan can reduce your monthly contribution requirements.

#5 Ask grandparents and relatives for money for the occasion.

Most plans allow grandparents and other loved ones to contribute directly to a child's 529 plan. They can make direct deposits electronically, cash, or gift checks.

#6 Choose your investment options wisely.

Each 529 plan offers several investment options that you can choose from. Each has a different potential for return and risks. You can choose from strong to moderate options, conservative options, or a mixed portfolio that spreads risks and returns. You are allowed to change your wallet twice a year.

#7 Understand the pros and cons of the 529 plan.

Despite its many benefits, 529 plans come with some downsides that you should be aware of. Understanding the pros and cons will help you make a more informed decision.

#8. Make sure the money is used for purposes that qualify for tax benefits.

Tax credits are one of the biggest benefits of a 529 plan. But you only enjoy these benefits if the 529 funds are used to make eligible purchases. This includes college tuition, fees, books, approved course materials, room and board, and school supplies. If the money is used for other purposes, you will pay federal income tax on investment gains. This can eliminate all benefits of contributing to a 529 plan.

The key to making a 529 college savings plan work for you is choosing the right plan for your family.

Even with proper planning, many families must turn to student loans to help cover college costs. If so, you will need to find a student loan that fits your needs. Check out our free student loan finder to compare lenders and rates side by side.