If you ask a financial adviser to explain what a 529 plan is, arm yourself with a full cup of coffee first. I think there are a lot of complicated facets to these plans, but they do work well for a lot of people. As I shared in my last post, I personally prefer the Coverdell Education Savings Account, but I know that 529 plans are a lot more popular.
I think the simple explanation as to why they are more popular is there is a $60,000 limit on the yearly amount that can be invested in these plans per year. Other rules apply, but this higher yearly limit allows the savings account to better fund the costs of college for some lucky little squirt.
What I find strange about these accounts is how you choose them. States have sponsored 529 plans through some investment company. When you choose an investment firm, you choose a state plan to invest in. Your investment choices are then chosen by this plan. There is little flexibility. For example, American Century has a 529 plan sponsored by the state of Kansas. Tax benefits follow if you are actually a resident of Kansas. You have no other choice with American Century- it is Kansas or nothing.
I could advise you now to refill that coffee cup, or cut it short with this simple understanding; 529 plans are great if you (or grandma and grandpa) have a good amount of cash to invest on a yearly basis for college expenses. You can invest in plans that aren't for your state, but you get more benefits if your state matches that of your investment plan. I have searched both the plan offered by my state as well as what investment firms belong to which states. This is the point where I tell you to check with your own financial adviser. At least you have the knowledge that such a plan exists.
Most importantly, I think we should save for our kids. If all you can do is put $25 a month into an account, DO IT! It will truly make a difference. A lot of mutual fund companies have low initial investment amounts as long as you set up automatic recurring deposits.
Thanks for reading, and have a good weekend!