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Saving For Your Child's College Education With A 529 Plan

529 Plans in New York

By Chloe Choe April 13, 2021

Wondering how you can start saving for your child’s education? With tuition rates consistently on the rise, it’s important to think about saving for your child’s college tuition. A 529 plan is the most common way that is used today to save for future education costs. In this article, I’ll be going over what the 529 plan is, how to start one, and how you can utilize it in the future. 

What is a 529 Plan?

A 529 plan is a tax-advantaged savings plan that you can use for further education costs. There are two types of 529 plans -prepaid tuition plans and education savings plans. Depending on where you live, you may be eligible for a prepaid tuition plan. You can also enroll in both a prepaid tuition plan and an education savings plan if you so desire.

Prepaid Tuition Plans 

Prepaid tuition plans are savings plans that allow you to pay for today’s tuition rates for future tuition costs for specific in-state schools. These are bought as units and 100 units can be used for one year’s worth of tuition. Prepaid tuition plans can only cover the cost of tuition and fees. They cannot be used to pay for room and board, supplies, or other expenses.

Currently, only nine different states are accepting new applicants for the prepaid tuition plan. The prepaid tuition plans for these states can be found on these websites. 

These units have to be used for further education before your child turns thirty, or you can cash them out after paying taxes. There is usually a maximum amount of units you can have per child but they are transferable to other children. 

If your child happens to want to go to a college that is out-of-state or to a non-eligible in-state institution, you can still use the cash value for the units at that particular point in time to pay for part of the other institution’s tuition. 

Education Savings Plans 

Education savings plans are tax-advantaged investment portfolios. You can invest the money you put into an education savings plan into a mutual fund or ETF, just like a normal brokerage account. If you prefer to be on the safe side, you can even invest it into dividend stocks. Or if you want to be more aggressive with your portfolio, you can invest in other individual stocks. Regardless of your choice, the account will be tax-advantaged. 

Education savings plans cover more costs than a prepaid tuition plan because they can be used for expenses other than just tuition and fees, such as room and board, internet expenses, and supplies.

529 Plans in New York

New York currently sponsors two types of 529 plans. The first one is called the New York 529 College Savings Program and the second is called the New York 529 Guided College Savings Plan. These are both types of education savings plans, as New York does not have prepaid tuition programs at this time. 

College Savings Program

The College Savings Program is an education savings plan that features Vanguard mutual funds. This is open to residents of any state but offers tax deductions to residents of New York. There is no enrollment fee, no minimum balance, but there are program management fees. You get to choose your own investments with this plan.

Guided College Savings Plan 

The Guided College Savings Plan is an education savings plan that is managed by a financial advisor. There is a minimum balance of $1000, an annual management fee of $25 for accounts of $25,000 or less, as well as program management fees. With this 529 option, a financial advisor will guide you with your investments based on what kind of portfolio you are looking for.

Conclusion

A 529 plan is a great way to start saving for your child’s education. Whether your child is a toddler or a teenager, consider looking into a 529 plan. Your wallet and your child will thank you in the future!



Chloe is a software engineer who has a passion for personal finance. She blogs about credit cards, investing, and side gigs at Off Hour Hustle. When she’s not coding or writing, you can find her climbing, hiking, and skating.

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