If you already have children or are making plans to grow your family, it makes sense to consider a 529 plan. These are plans which are set up before your kids even head out to college, allowing you to put money aside for tuition so it will be there when you need it. There are a number of benefits to using this type of program, not the least of which is the possibility of locking in today’s tuition prices. With the ongoing increase in tuition, paying 2012 prices for a plan which might not be cashed in until 2025 makes good financial sense.
There are also some really attractive tax benefits available to those who take advantage of 529 plans when planning for their families’ futures. For example, the money invested grows tax-deferred, and college costs later are free from federal taxes. Some states also offer considerable tax benefits. A skilled local attorney can help you assess the applicable tax benefits for those residing in the Northeast Ohio area.
Because 529 plans are typically run through states or institutions, there is often concern about whether or not kids growing up in the Northeast Ohio area have to attend specific schools in Ohio. Most plans actually allow you to choose from a variety of schools, not limiting you by geographic area. In fact, it is common for families from one state to choose to invest in a 529 plan from another state because they prefer it for one reason or another.
There are two different types of 529 plans to consider when planning for your kids’ future. (Or your own, as you can set up a plan for yourself if you know you’re interested in going back to school in the future). “Savings plans” are similar to retirement plans, with your contributions invested into things such as mutual funds. The value of the plan depends on how these investments perform. “Prepaid plans” simply allow you to pay the tuition in advance. These can often be converted for use at out-of-state or private colleges.
CBS News has a good rundown on six reasons to invest in a 529 plan. They include reasons such as the fact that tax changes in 2013 won’t affect money already invested and a likelihood that investments made now will keep pace with tuition increases. Grandparents are even looking at 529 plans as a way to provide for grandchildren during the estate planning process.
If you have questions on how to set up a 529 plan and whether it’s a wise option for your family, give our Northeast Ohio trusts and estates law firm a call at (440)449-3266 and schedule a complimentary consultation with the mention of this article.