It’s never too early to start funding a 529 college savings plan for your kids, according to one expert, a financial strategy that comes with a host of benefits.
“As soon as you get that Social Security number, let's start putting a little money in there. Get $100 in there a month, $50 a month or just $100 a year,” Jason Bottenfield, managing director at Steward Partners, recently told Yahoo Finance Live (video above). “Start now because that compounding and tax advantage growth, it's the eighth wonder of the world.”
These plans are state sponsored and allow parents to save for college costs and also for tuition up to $10,000 for private, public, or religious education from kindergarten through high school. The funds can also be used for student loan payments and expenses related to apprenticeship programs.
Funds grow tax-free and withdrawals aren’t taxed if made for qualifying expenses. While there’s no federal deduction for contributions, more than 30 stats offer a full or partial tax deduction or credit for these contributions. These plans also have no income limits, age limits, or annual contribution maximums.
Bottenfield also told Yahoo Finance Live that age-based 529 plans let parents save money for their children for a specific number of years. Those plans change the fund’s balance based on how close the child is to college age. The age-based options “change the risk parameter,” he said, and give parents time before they need to withdraw the funds for their kids’ college education.
“That age-based option allows you to potentially forget about it, but not stay risky a couple of years before you'll need that money,” Bottenfield said. “In times where you're seeing volatility right now, you really don't want that 100% equity in that account the year before you might use those funds.”
Ella Vincent is the personal finance reporter for Yahoo Money. Follow her on Twitter at @bookgirlchicago.