Benefits of Investing in a 529 College Savings Plan

This post is inspired by this comment “The best investment that you can make is in yourself”, which was made by a reader. Indeed, the best investment is to invest in your personal development or the development of your loved ones. Speaking of development, college education is the best way to enhance your skills. If you have children, you are definitely thinking about saving money for their college education. Now, as a savvy parent, you can not only invest in the future of your child, but also get to grow your investments tax-free. Of course, college money does not grow on trees, but it grows in a 529 savings plan. While parents know that investing in a 529 college savings plan is important, some of them are caught up with other expenses such as mortgage payments or saving for 401K. If you are already living your American Dream and have home loan payments to make, it is time to organize your finances so that you make a systematic investment in your child’s future without hurting your nest. Here are some tips that will help you to save and grow your money systematically for your child’s future.

Savings vs. Debts
For those, who think that it is wise to make the debt payments before starting to invest in a 529 plan, you are right. However, all debts are not expensive, as long as you understand the benefits you are getting from keeping the debts like your home loans. Your home loan definitely offers you an advantage in the form of tax rebate for interest you have paid towards your mortgage. If you have any credit card debt or personal loan with high interest rates, you should definitely think of paying that off completely. You need to a little bit of calculation to make the right selection. So, if you are thinking of putting less in your child’s 529 plans and put more towards your home loan, you are losing the financial leverage, because your money tree is growing tax free. You can get this free money, as long as you are using the withdrawals for qualified educational expenses.

Now or Never
For college savings, sooner you take action, better the results. If you are planning to completely defer college savings, be prepared to bear the additional cost. Whatever amount you are setting aside now is growing and adding up fast. Your money is working for itself, while yielding you a higher return. If you delay starting 529 savings plan by few years, you might have to end up saving more in order to achieve your goal. So, start today with whatever little you can and then go on adding to it. You should rather do it today. If you are skeptical about how much you are going to get in return, the answer is definitely more than what you are getting now (which is nothing). So, do not wait for another year.

Scholarships vs. 529 Savings
You must be thinking “My child is an A+ student and will most definitely get scholarship from the best of colleges and that will take care of the education.” College education involves several other expenses such as college supplies, books, etc. Your savings will help your child meet all those expenses. Savings in a 529 plan can also be transferred to siblings or any other family member. If you wish to go back to college, you can use this amount as a qualified expense and increase your earning potential. If at all, you want to withdraw you can do so by simply paying the taxes on your earnings, provided you are withdrawing the amount matching the scholarship amount, otherwise you have to pay 10% penalty for non-qualified withdrawals.

A 529 savings plan not only offers many benefits, but also encourages you to save more for the bright future of your children.

The great aim of education is not knowledge but action</em>”- Herbert Spencer.


3 thoughts on “Benefits of Investing in a 529 College Savings Plan

  1. Pingback: 3 Tips to Maximize your Returns on 529 Savings Plan | Quest for Knowledge

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