In short, a 529 plan is the best way to save for college. Not only are withdrawals from these accounts tax-free (like a Roth IRA), but these plans are also beneficial at FAFSA time, because they don't count against your grant eligibility as much as some other options do. 529s allow anyone to contribute (parents, grandparents, aunts, etc.). Also, 32 states let you deduct plan contributions from your state taxable income ($5,000/year in North Dakota, for example). Many plans have handy age-appropriate portfolios you can choose from (heavier on stocks for younger children, more bonds for older ones).
Every state has its own 529 plan, but you are free to use any state's plan. Utah's plan is a good pick for non-residents, or so I hear. If you do a Web search for 529 + your state, you should find all the info you need. Get to it.
I was under the impression though that 529 funds can only be used for educational expenses. So if you save religiously from the time little Timmy is a toddler and then he decides to run off and join the circus, you're hosed. If that's true, that's something people need to consider before signing up.
ReplyDelete'Tis true that you must use the money for education, or else pay a 10% penalty and back taxes. However, you can change the beneficiary of your plan to another kid, or yourself, or some other family members.
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