A college degree can be a pivotal milestone in a person’s scholastic journey; it can lead to career opportunities which may not be available to those without a degree. As college tuition continues to rise each year, it’s never too early to start planning for your child’s higher education expenses. That’s why we’re celebrating 529 Day!
Observed annually across the U.S. on May 29 (5/29), 529 Day was introduced to bring awareness to 529 college savings plans and encourage families to start saving for future education expenses now. So, what are 529 plans? Continue reading to learn about saving for your child’s future.
What Are 529 Plans?
A 529 plan is a tax-free investment account designed specifically to help you save for future education expenses. Named after Section 529 of the IRS code, these plans are sponsored by state governments, state agencies, or educational institutions. Plans are sponsored by states and each state, including Washington, D.C., offers at least one plan.
In Pennsylvania, the state-sponsored 529 plan is known as PA 529. The PA 529 plan offers two different savings plans to choose:
- Guaranteed Savings Plan (GSP): These plans enable you to lock in today’s tuition rates to pay for tomorrow’s education. The account owner or beneficiary must be a PA resident. When you open a GSP, you can select a tuition level, such as private colleges or state schools. You’ll then be told how much you need to save based on the tuition level you choose. You have the option of changing the level in the future.
One drawback to GSP is that not every school is covered by the plan. If your child decides to go to a school that doesn’t participate in the plan, it can affect the value of your savings.
- Investment Plan (IP): With the PA 529 IP, you can customize your investment options to help grow your child’s savings over time. The value of the savings isn’t connected to the school your child decides to attend when you choose your investment option. Like most types of investments, there is a chance your account will lose value based on how the market performs.
Both options allow your child to use their savings for a variety of education expenses at numerous colleges, universities, vocational and technical schools, and more. If your child doesn’t pursue a path of higher education, you may choose to update the beneficiary to other members of your other children.
Advantages of 529 Accounts
- Tax-deferred growth. Contributions made to the plan grow free of federal and Pennsylvania income taxes while they remain in the account.
- Tax-free withdrawals. When used for education expenses, you won’t pay income tax on the growth in the account.
- No age limit. With no maximum age for using a 529 plan, your investment may be eligible to be used at schools offering adult career training or advanced degrees, including part-time programs.
- Flexible funds. The money from a 529 plan can be used toward a variety of qualified higher education expenses, including tuition, fees, room and board, textbooks, and more.
Opening a 529 Plan
If you’re interested in opening a 529 plan, it’s important to do your research and compare plans to find the one that’s right for you. The pa529.com offers a wealth of information on the different plans available, as well as tools and resources to help you get started.
Let’s Celebrate 529 Day!
Help us celebrate 529 Day. Consider spreading the word about the importance of starting early and saving for college by sharing information about 529 plans with your family and friends. You can also use the day as an opportunity to review your own college savings plan and make any adjustments to ensure you’re on track to achieve your goals.
If you’re looking for other ways to save for your child’s future education, we offer IRAs, Coverdell ESAs, youth savings accounts, and investment options that can help set your child on the path to financial success.
