Experts say that establishing a savings routine is more important than the amount you set aside. “You don’t have to save for all four years of college to benefit from a 529 plan,†says Michael Fitzgerald, Iowa state treasurer and chairman of the College Savings Plans Network. “Start with a year, or even a semester.†Empirical evidence shows that children who have a 529 plan are more likely to enroll in college, Kantrowitz adds, not just because the money is available, but also because it sets up an expectation for them to attend.
Getting started with a 529
Those looking to open a 529 plan should always start by researching what their home state has to offer, says Fitzgerald. Most states offer plans that include tax incentives such as state income tax deductions in addition to the standard federal tax-free distribution. In Colorado, all annual contributions are deductible from state taxable income unless non-qualified withdrawals are made. Some states don’t require a minimum contribution; others require as much as $1,000. Also, consider fees when selecting a plan. Kantrowitz says that, ideally, fees should be less than 1%.
Joe Hurley, a 529 savings plan expert, suggests selecting an age-based option which invests more aggressively when the child is young but more conservatively as he or she gets closer to college age. He says that while there’s never a guarantee that money won’t be lost, this option can help protect money that is earned over the years. Kantrowitz says this option usually starts off with a portfolio of 80% stock and ends with about 20%.
States that Offer a 529 Plan Match
Every state (except Wyoming) along with the District of Columbia operates its own 529 plan; however, not all of them offer matching grants. Here is a complete list of those that do:
Arkansas (www.arkansas529.org)
Colorado (www.collegeinvest.org)
Florida (www.myfloridaprepaid.com)
Kansas (www.learningquest.com)
Louisiana (www.startsaving.la.gov)
Maine (www.nextgenplan.com)
Missouri (missourimost.org)
Nevada (uii.s.upromise.com)
North Dakota (collegesave4u.s.upromise.com)
Rhode Island (www.riheaa.org/cbf)
Texas (www.lonestar529.com)
Utah (www.uesp.org)
West Virginia (www.smart529.com)