Morgan Stanley
  • Wealth Management
  • Aug 19, 2021

9 Tips to Help Your 529 Plan

Explore these tips to help you to better understand what a 529 savings plan is, how it can help lessen a financial burden and potentially benefit you and your children.

An education is one of the most rewarding experiences a person can have in their lifetime, but it can also be one of the most expensive: 2/3 of US parents with college bound students worry about funding their children's education1—which is where 529 plans can come into play.

Having a 529 plan can help lessen a financial burden and make you feel more prepared for the future. Here are nine tips to help you better understand what a 529 savings plan is and how it can benefit you and your children.

1. How a 529 plan works

 A 529 is a tax advantaged investment plan that can help you pay for your family’s future education expenses.  These plans offer tax-free growth, potential estate tax benefits, and a high degree of control.    

2. Research the right 529 provider

This is often the biggest challenge for people who want to invest for future education costs. With multiple options available, it can be hard to narrow your choices. There are many factors to consider, and it’s important to figure out what works best for you and your family. Search online for reputable sites that compare costs and investment options across plans2.

3. Use your 529 plan on qualified expenses

A 529 plan can be used for a variety of qualified education expenses, including tuition, room and board, books and supplies. In addition, 529s can help pay for private K-12 education, graduate school, semesters abroad, apprenticeship programs and even student loans. Many students obtain degrees from two-year institutions, such as trade or vocational schools. For example, attending a culinary school or electrician program may be funded by a 529 plan.3 While qualified expenses can be broad, it’s important to check with your 529 Plan and understand which expenses are not qualified for 529 plan use. 

4. Take advantage of the state tax benefits offered in over 30 states

Many states offer state income tax deductions or credits for contributions to a 529 plan. The amount will depend on where you live. In many cases, you’ll have to pay into your state’s 529 plan to qualify for a state income tax benefit. Find out here if you live in a state that offers this benefit. 

5. Learn about related employee benefits

The benefits world has seen a shift as more people graduate college with debt. The class of 2020 graduated with an average of $36,140 in student debt.4

With staggering numbers like these, it’s understandable that many parents would want to invest for college with a 529 plan. Some employers offer solutions to help their employees plan for education. An example of this is Gradifi by E*TRADE’s College Save Up program, where employers can ease the burden of saving for education by directly contributing to an employee’s 529 plan.

6. Develop a strategy with your family

Sending your children to college can be a complex task. The cost of tuition is rising at twice the inflation rate.5 Educating yourself and your family on how to best plan for education expenses is one of the most important things you can do, and a 529 plan may be a solution to consider. Having an open dialogue about education costs with your loved ones is also important. Make financial literacy a family affair and help your children understand how financial planning supports their education, dreams, and future plans.

7. Contributions to a 529 plan can come from others

The great news is that anyone can contribute to a 529 plan regardless of who owns the account. This means parents, grandparents, aunts, uncles, friends, or other relatives are eligible to help you save for education costs.

One thing to keep in mind is the gift tax that can be assessed on large contributions. Anyone, including grandparents, can contribute up to $15,000 per year ($30,000 for married couples) to any individual’s 529 plan, without triggering the gift tax.

8. You can change beneficiaries

Maybe your child decides they don’t want to attend college. You can change the beneficiary to another qualified family member, including for example, a sibling, niece, nephew, or even yourself. 

9. You can contribute automatically – here are the limits

Setting up automatic contributions ensures that you save, easily and efficiently. The maximum account contribution limits are generous, ranging from $235,000 up to over $500,000 per beneficiary.3