When it comes to saving for college, a 529 plan is a great option for your parents to consider. A 529 plan is an educational savings plan operated by your state or an educational institution that will work to help your family save money for college. Check out the information below to learn about this savings option. For more details see the 529 information from the Securities and Exchange Commission.
- Your parents call the shots. As the beneficiary, you are not the owner of the account, which means your parents decide when withdrawals are made and in what amount. This way you won't have to worry about managing the account or about making decisions about how much to take out and when to do it.
- Earnings are not taxable. Earnings from a 529 aren't subject to federal income tax as long as the withdrawals are made for college expenses. The money grows without being taxed and when it's taken out, it's not federally taxed either. However, be sure to read the specifics of the plan you and your parents choose. If the money is taken out and not used for college, it is subject to tax and other penalties.
- Research your options. 529 plans are sponsored by individual states, so they vary slightly. You and your parents should research different plans and shop around for what works for your family. For example, some states offer their own state tax incentives as well.
- Take your pick. You can choose a 529 from a state other than the one you live in. If you live in Georgia, but you like the plan from Florida better, that's okay. You can sign up for any state's 529 plan.
- Let people know you have a 529. Once you have a 529 set up, anyone can contribute to it. For birthday and graduation presents, make sure people know about your 529 and ask them to contribute to it (instead of giving you an ugly sweater!).
- 529 plans come in two varieties. 529s are either college savings plans or prepaid tuition plans. College savings plans let parents use the funds for college expenses at any college. Prepaid tuition plans let parents lock-in future tuition at in-state public colleges at present prices.
Your parents aren't the only ones that can open a 529 for you. This is something that your grandparents might be interested in doing too.
For more information and resources to help military youth and teens navigate everything from the unique challenges of a mobile military lifestyle to managing their social lives, saving money, and going green, visit Military Youth on the Move!