Is A 529 Savings Plan Right For You and Your Family?

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Is a 529 Savings Plan right for you and your family? By adding just one simple savings vehicle you could save thousands for your family and leave a legacy your family remembers forever. Plus the new year is right around the corner, and we all have been thinking about goals to add for our finances in the new year. We’ve figured out how to save more of our hard earned money! 

What is a 529 plan first?

It is a place to save money for college. 

Recently new: A 529 Plan can be used as a saving vehicle for K-12 Tuition too.

What are the benefits?

The earnings are tax free and are not taxed federally when you use the money to pay for college. Say you put $15,000 in the account and it grows to be $25,000.  That $10,000 is not going to be taxed, which usually would be taxed and could be as low as $7,000 from your original gain of $10,000. Putting $3,000 back into your pocket for expenses!  

Saving you money in taxes, which did you know it is one of your top expense in your budget? Yes, taxes that you pay every single paycheck. 

Check out your payroll statement to see for yourself.  How much do you pay in taxes every month?  Is it more than your mortgage payment? Your rent? Utilities? Food?

Some states offer a state income tax deduction too for a 529 plan, meaning you save more of your hard earned money.

Example) State tax 5.75% in Virginia and you can contribute $4,000 per year.  You will save $230 in taxes each year.

You can also repay federal and private student loans with it! 

Plans are flexible allowing you to change beneficiaries (the person who the money goes to).

You are in control of your account and you can link it to you, which we love! Plus include it in your networth and watch it grow!

What if my child does not want to go to college?

That is okay, but you will pay for it in taxes and a 10% penalty.

But did you know, you can move the money to another family member.  Say, you have 2 kids and one decides not to go to school.  Change the beneficiary and bam more money for that other child or say neither of your kids go to school.  You have a huge start for your grandkids or even a niece or nephew or 1st cousin.  You can continue to move the beneficiary so you will never lose the money.  You can change the beneficiary once per 12-month period. Think of it as a savings vehicle to save money on taxes and pay for school within your family. 

Just like a health savings account (HSA), is a saving vehicle to save money on taxes on health expenses. If you are in medical debt, we want to help you. The HSA is another way to avoid paying more taxes – one of the biggest expense in your budget! 

There are also exceptions to the 10% penalty too for the beneficiary if:

  • Receives a tax-free scholarship
  • Attends a U.S. Military Academy
  • Dies or becomes disable 

Be sure to get more information if you believe you should be able to waive the fee. 

How does your child use the 529 plan?

Most accounts allow for you to get the money out directly from the account to you or your child, but some plans make you pay the school directly from your account.  You will need to research the one you open.

Can I choose a 529 plan in a different state than you live in? 

Yes! Though most states offer you an incentive to keep the account in it your place of residents to keep the money in their state. Plans are good nationwide! 

When you are researching here are some questions to think about:

  • How much money can you save if you stay within your 529 plan in your state?
    • 5.75% state income tax; $4,000 limit; is a savings of $230
  • When is the fee paid?
  • When do you add the fee to it?
  • When is the tax break?
  • Is there a difference in interest rate growth?

One of our favorite places to compare is

What could saving early with a 529 Plan really do for your family?

First off, you are leaving a legacy for them.

Let’s take a look.

Invest $89 per month. Total $1,089 per year. 

Total Contributions over 18 years is $19,224

Growth $15,250

Your investment in 18 years could be worth $34,474 with a 6% annual return. 

Less time?

Lets show a 10 year span; start investing when your child is 8 years old.

Invest $89 per month. Total $1,089 per year. 

Total contributions over 10 years is $10,680. 

Growth $3,905.

Now let’s look at this version. If your child decides to go to college, and they have to take out student loans. 

They take out a loan of $25,000.

It will take them 10 years to pay off.

They will pay an extra $6,790.15 in interest with a 4% interest rate.

You choose the way that is right for your family.  The lower/middle class will more than likely choose the loan option.  The middle class that wants to be the higher class will choose the 529 Plan to use interest as their game changer. 

It is a benefit that is offered to everyone, but it is how you choose to make your legacy.

Articles you will enjoy:
Why we choose Virginia Invest 529 Plan?

Before choosing the plan we choose though, please do your research here to make sure it is right for you and your family too! 

These are the 3 we looked into. Invest 529, NY 529, and Ohio 529.

Virginia’s Invest 529 

The VA Invest 529 Plan had these benefits for our family:

  • Low fees – $

The fees we are paying is a .13% expense ratio. 

  • Good returns – 3 Stars

The performance for the VA Invest 529 plan allows us to invest via Age based for easy hands off investment plus target risk portfolios.  Currently, we are investing in the aggressive growth portfolio which is 80% equity and 20% fixed income. 

Here are the returns:

  • Easy for family members to contribute with no fee

Friends and family members are able to contribute online, by gift card, and by mail.  This allows us to be happy that our child is not missing out on anything during holidays and their birthdays since we live tiny.  Our family is able to give to their grandchild’s future. Since we live tiny, we do not have a lot of room for a bunch of toys and other items.  We have to think twice about the things we receive due to lack of room.

  • State income tax deduction of $4,000 per account per year

Virginia has an income state tax of 5.75% and we would save $230 per year on top of the other tax benefits we would receive.  A total of $4,140 for 18 years of savings if we invest each year $4,000. Want to see your state? Yes, please this is based on 2020 numbers.

Now that you have more information about 529 Plans you can make the decision that is right for you and your family. We want you to think about more important things – your families future. A 529 plan is just another savings vehicle to use to save money on taxes, invest, and grow wealth instead of take out loans.

We cannot make you open up an account, but we can tell you all the benefits. We will tell you we have your best interest in mind when we write to you each week. We never tell you anything that we do not believe in ourselves and have completed. 

Like it if you know someone who can benefit from a 529 Plan.

Like it if you want to leave a legacy for your family.

Pin it if you want others to learn about this savings plan.

2 Comments on “Is A 529 Savings Plan Right For You and Your Family?

  1. Pingback: How Living Tiny Has Played A Key Part IN Our Dreams To Live Financially Free! – Believe and Budget

  2. Pingback: The Importance of Taking Action With your Money if you are a Women! – Believe And Budget

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