Planning for their children’s future is and should always be the top priority of all parents. Having enough savings in place is enough to secure the future education costs of your child. Later in this article, we will discuss when to start a 529 for your child.
But many parents often find themselves wondering when they should begin saving for their children’s future. The simple and short answer on when to start a 529 for your child is as soon as possible.
Continue reading below to learn more about saving for your child’s educational needs:
When Can You Begin a College Fund for Your Child?
The truth is that you can start a 529 or begin saving for the college expenses of your child at any given time. But before you do so, there are still a few things you need to keep in mind.
For starters, these accounts must have a beneficiary who will be using them. You will need the Social Security number of your child for them to be named as the beneficiary of the account. You can expect to get the child’s SSN about a couple of weeks after you give birth. Once you have the number, you can already set up an account for college savings under your child’s name.
There is another good time to start, and that is even before the birth of your child. With 529 plans, it would be easy and simple to change the beneficiary. It means that you can set up a savings account listing yourself as the beneficiary and change it later on after your child is born.
529 Plans and Other Ways to Save for College
You can choose from different methods of saving for your child’s college education. For instance, a lot of parents simply opt to save some cash in a checking account or regular savings account. Other parents invest for college with a brokerage account with plans to withdraw funds and sell investments once the time comes.
But you can enjoy more benefits if you use college-specific savings and other similar tax-advantaged ways. These include the following:
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529 Savings Plans
Every state administers 529 savings plans that have the same structure as 401(k) accounts when it comes to investment selection. In general, you can choose from one or two dozen investment funds. You can also choose age-based portfolio options.
As far as tax is concerned, 529 savings plan contributions are not deductible from your federal tax return but might be deductible from state taxes. But all withdrawals qualified for education expenditures are completely tax-free regardless of the state of your investments.
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Coverdell ESA
Coverdell ESA or Education Savings Accounts are brokerage accounts that let investors invest their college savings in almost any bonds, funds, or stocks they want. These accounts also have the same tax structure as that of the 529 savings plan with tax-free qualified withdrawals.
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Roth IRAs
Roth IRAs are also often used for college savings, sharing the same basic tax structure as the first two methods above. College expenses are also allowed exemption to the early withdrawal penalty of the IRS.
Start a 529 for your child as soon as possible to secure a brighter future for them.