Saving for College the Smart way - 529 Plans

Money Magazine has a new article, just published on CNN.com, about 529 plans. It asks if 529 plans are still the way to go. The answer: absolutely, except in very rare circumstances:

The tax breaks usually make 529s unbeatable. Say you’re in the 28% tax bracket, have a five-year-old and save $200 a month in Utah’s low-cost 529, which has annual expenses of 0.38%. Assuming annual average returns of 5%, you’ll have $39,100 by the time your kid is 18. Invest the same amount in a taxable account with equal fees and returns, and you’ll have $36,200 after taxes. In other words, you’ll lose $2,900.

The 529 comes out even further ahead if your state allows you to write off all or part of your contributions (33 states and the District of Columbia will let you do that).

Investor’s Business Daily, the international finance magazine, published an article yesterday about the benefits of 529 plans. The article discusses the tax benefits, in particular not having to pay federal (and sometimes state) taxes on your investment earnings.

As 529 plans grow in popularity you’ll see more and more of these mainstream articles covering 529 plans. And 529s are becoming more popular everyday. The article points out that there is now $112B in assets under management in 529 plans.

When it comes to tax benefits, you need to consider if your state offers benefits to you before looking at other states’ plans. Take a look at your state to see what it offers.

I’m excited to announce that 529s.com has released a new report, “5 Biggest 529 Plan Mistakes”. The free report discusses ways that people make costly mistakes when setting up 529 plans.

I recommend downloading a free copy while doing your research on 529 plans.