Wednesday, September 14, 2005

A Perfect Newborn Gift - 529 College Saving Plan

Let me tell you a secret. I'm not old enough to care how I dress at the moment. I'm just trying to learn to lift my head. No matter how cute the outfit is you're thinking of buying for me, I guarantee I will never remember it or appreciate it at a later date. I'll probably only get a chance to wear it a time or two before I grow out of it. Chances are that I will spit up all over it. It won't impress me in the least bit and the only way that it may ever be remembered by anyone is if I happen to be wearing it when a photo is taken. In other words, that outfit you're thinking about getting me isn't really a gift for me (it's simply a gift to my parents).

If you really want to give me a gift that I will appreciate, it will have to be something that will still be around when I am able to function as a young adult or at the very least, be able to understand the concept of a gift. While you may think that finding a gift that can do this will be difficult, the truth is that it's extremely easy to do. Give me an investment in my future. Simply take whatever amount of money your were planning to spend on gifts to me and set it aside for my education fund.

The amount of money given is of less importance in the long run than actually helping my parents get a college saving account set up. This is because I'm keeping them plenty busy these days and they are so overwhelmed with other stuff that even though they know saving for college is important, it has been put on the back burner. If you can do the legwork and open a college savings account for them, you'll be providing a valuable service for them as well as giving them an easy way to save for my education in the future.

Consider opening a 529 plan fund for me. Not only will this give a small start to my college fund, your gift to me will also be a tremendous gift to my parents. There are a couple of ways that you can go about doing this:

You can either open the 529 plan account in your name or help to open the account in my parent's name. Which is better depends on what your goal for the account is.

If you're looking to help my parents begin saving for my college education, then setting the account up in their name and making a contribution to that account is the way to go.If you are planning to help and make consistent contributions yourself to the fund, then creating the account in your name and making me the beneficiary may be the way to go. Either is far superior to that outfit you were thinking about buying.

Some basic information about 529 plans for those that aren't familiar with this college saving opportunity:

The 529 plans are named after a section 529 of the Internal Revenue Code which established them.

Contributions to 529 plans use after-tax dollars. The money in the account grows tax-deferred. No federal or state taxes are owed if the funds are used for qualified college education expenses such as tuition, books, room and board.

The 529 plans are not a federal program. Each state has their own individual plans. It's not necessary to invest in your state's plan, but some states have added tax benefits for residents that invest in their state's 529 plan.

Each state usually offers a number of investment options under their 529 plan. The investment choices are usually conservative, with many offering plans where the investments gradually shift toward shorter term and safer investments as the beneficiary nears college age.

The funds in the 529 account can be used at any accredited public or private college in the United States - it doesn't have to be in the state where the plan is set up.

When you open a 529 plan account, the adult is the account holder with the child being the beneficiary

Most state 529 plans require a small minimum investment to open an account. Accounts also have maximum amounts that can be contributed for any one beneficiary.

It's usually possible to contribute through payroll deductions.

It's possible for a number of people to open accounts for the same child as long as the combined amount does not exceed the plan's maximum level.

If the money in a 529 plan is used for expenses other than those specified as qualified college expenses, the earnings are subject to taxes. In most cases, this is a 10% penalty.

The account owner may change beneficiaries if they wish.


JLP said...

Man, you are one smart baby girl!



PS - Thanks for the link!

thc said...

Margot: One month old, already bloggin and a positive net worth! Things are looking good.

Millie Airess said...

You are right "ON THE MONEY"! I am a new grandmother with an investment license and I placed a little note in the baby shower invitation that as an option the guest could write a check to me as account holder for my first granddaughter's 529 account.

My son and his wife were not happy and surprised that I actually received checks (money came from MY invited guest. My daughter in law was really upset! But just wait until they see the results 18 years later!

My Granddaughter received $225.00 in gift money plus I will open the account with $500.00. Not bad for a newborn's account $725.00 to start. My granddaughter will love me!