Saving money is hard when you’re a parent. Kids are expensive, and there’s no shortage of things to pay for while they’re in your house. That’s why so many parents have trouble saving for their child’s college fund.
Luckily, there’s a way to effortlessly save for your child’s college, regardless of your income. Best of all, your savings will actually grow as your kids grows, and you can reap some sweet tax benefits, too.
It’s called a 529 plan, and its sole purpose is to help you create a college savings fund. While it might sound complicated, SavingForCollege.com, an authority on the 529 plan, recently created this helpful cartoon to help you understand the ins-and-outs of this helpful investment vehicle. If you’re on a tight budget but want to make sure your child has a bright future, then a 529 plan might be for you.
Like all investment vehicles, 529 plans come with their share of advantages and disadvantages. The contributions themselves are not deductible from your taxes, but many states offering 529 plans allow deductions for some or all of your contributions. You can also automatically invest money in a 529 plan by making automatic deposits. However, you must use all funds in the 529 plan for eligible college expenses, or you could be subjected to taxes and penalties.
Before you enroll in a 529 plan, be sure to check with your state and your financial services provider to see if investing in one is right for you. Each state has their own rules regarding 529 plans, but if your state offers one and it makes financial sense to open one, you could be helping your kid’s future before they even start high school.