By Kelly Mitchell, Indiana State Treasurer
December 5, 2017
Just heard of 529 Plan accounts? Already have children in high school? You may assume that it is too late to begin saving for their higher education expenses in a 529. Thankfully, it is not! In fact, in Indiana we are fond of saying it’s never too early nor too late to save.
As with anything in life, a dollar saved ahead of time is cheaper than borrowing the same dollar later on. This lesson is never more easily learned than right after college, when a recent graduate receives the first notice of payment on his or her student loans. These loans and the high interest rates they bring into a young person’s life can hurt their ability to pursue other important financial needs like buying a home or saving for retirement. No matter the amount, any money put aside now will not only help cover higher education expenses, but make the transition to adulthood just a little bit easier.
With only four, three, two or – yikes, one! – year(s) left before college, what is the best way to invest your money in a 529? 529 Plans around the country boast a number of different options to meet the needs of short-term savers.
Most plans offer an age-based option set to grow more conservative as the beneficiary gets older, so even if you’re just beginning to save for your 16- or 17-year-old, your funds can be invested in a lower-risk portfolio designed to prepare you for oncoming higher education expenses. Many have FDIC-insured choices like savings accounts or Certificates of Deposit (CDs). While these look like traditional bank products, they carry the same critical tax advantages of long-term 529 savings: tax-deferred earnings and tax-free qualified withdrawals! Some states even offer a special tax deduction or credit for residents who use a home-state plan. These tax incentives help ensure saving in a 529 can pay off immediately, in addition to a few years down the road. At this time of year, it’s also important to note that most 529s accept gift contributions from grandparents and other relatives, who may also be eligible for their state’s tax incentive.
When I talk to my constituents about 529 Plans, I often hear them say “I wish this had been around back when I was paying for college.” Recently, there are more sentiments like “I’m so thankful for my 529!” mixed in. It’s never too late for a potential college saver to feel this way – even if his or her loved ones are heading off to school sooner rather than later. For more information on your home state’s 529 college savings plan, visit CSPN’s state page to review the details.
About the Author
Kelly Mitchell is the 55th Treasurer of the State of Indiana and chair of the Indiana Education Savings Authority, which administers the state’s CollegeChoice 529 Savings Plans. CollegeChoice 529 consists of over $4.1 billion in assets in more than 335,000 accounts. Mitchell is also a member of the CSPN Executive Board.