• Dave Kinzer

Why You Should Use A 529 Plan To Save For College

Updated: May 11

One strategy every family should utilize when saving for college is to invest money in a 529 plan. Put simply, a 529 plan is a college savings plan with tax benefits. It gets its name from section 529 of the IRS code.


Most states have a 529 plan. The cool thing is, you can use any state’s plan. You’re not limited to your home state’s plan

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I’ll discuss Illinois’ plan, since I live there. It is called Bright Start.


Over the years, I’ve just accepted the fact that Illinois is always going to rank near the bottom in nearly every financial category. We’ll be 46th in this category, and 49th in that category, dead last in that category, etc.


Imagine my shock when I discovered that when it comes to 529 programs, Illinois ranks at the top.


According to Morningstar, only four states were awarded a Gold rating for their 529 savings plans: Virginia, Utah, California, and Illinois. These four states were rated highly for their “low costs, strong stewardship, and exceptional investment options.”


What’s even more impressive is that Illinois has earned the gold rating three years in a row.


Savingforcollege.com also liked Bright Start. It gave the savings plan a 5/5 score for Illinois residents, and said “There are few, if any, weaknesses noted in the program.”


There are quite a few advantages to saving with a Bright Start 529 plan.


• Contributions are tax-deductible for Illinois taxpayers.

• Withdrawals used to pay for college expenses will not be taxed.

• In addition to paying for tuition, withdrawals can be used for fees, books, supplies, and even room and board and computer equipment if certain conditions are met.

• You can change the beneficiary of the account, if desired. For example, let’s say you’ve toiled and sweated and saved for years and now have $45,000 in your son’s 529 account. If your son decides not to attend college after all, after expelling him from the family (just kidding!), you are allowed to use that money for another child with no penalty. You could also use the money for yourself if you wanted to take university classes.

• There is no required minimum investment.

• You can use the money at almost every accredited college and university in the country. You are not limited to schools in Illinois. You can even use your savings at some foreign schools.

• Sometimes, Bright Start actually lowers its fees! In 2017, it lowered fees in several categories by an average of 50%. Nice.


The only drawback I can see to using a 529 plan like this is if your child doesn’t end up attending college at all. As mentioned above, you can use the money for someone else in your family or for yourself, but if no one else plans on attending college, you can withdraw the funds. You would have to pay income tax and a 10% federal penalty tax on the earnings.


However, if you are fairly certain your child will attend a school of higher education of some kind- public, private, vocational, trade, technical, etc.- you can contribute with confidence.


And don’t wait. If you just had a baby, start now! Think how much money you’ll have saved by the time your newborn is 18 years old.


It’s okay to start small. Even if you can only start with $25/month, that’s fine. Every time you get a raise you can increase your contribution. If you just increased your contribution by $10 each year, when your child is ten years old, you’ll be saving $125/month. That kind of money will add up fast.


So if you have a child of any age, and want to help him/her get a head start on saving for college, go to www.brightstart.com and open an account for your child.


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© 2019 by Dave Kinzer