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Written by: Ashley Perlmutter
Do you have a young child in your life that you want to save college money for? In honor of 5/29 day, it’s a great time to think about putting money aside for your grandchild’s and child’s future education. Also, great news, theres a new rule change that may be beneficial to you and your grandchild! With rising inflation, we don’t know what the price of tuition will be when your young grandchildren are finally old enough for college, so, now is a great time to begin looking into contributing to a 529 savings plan.
So, for those of you who don’t know, 529 plans are a type of investment vehicle that allows you and encourages you to save for your child or grandchild’s higher education using tax incentives, such as such as tax-free earnings and withdrawals for qualified educational expenses. Depending on the state in which you reside, choosing your state’s 529 plan may offer a tax deduction; however, consult with your CPA or financial advisor to see if the deduction outweighs the investment options and fees versus an out-of-state plan.
You can think of a 529 account like a traditional IRA or 401(k)account, where the growth compounds tax deferred as long as its used properly. In addition, parents and guardians have the potential of earning more by investing instead of leaving the money in a traditional bank account.
In fact, for you grandparents out there, there was a recent change to the financial aid rule allowing you to contribute to a 529 savings plan without penalizing or interfering with your grandchild’s eligibility for financial aid. This eligibility has long been issue for many individuals, so starting in the 2024-25 school year, children will no longer have lessened eligibility for financial aid while also having a grandparent 529. “The fear that a grandparent helping their grandchild by using their own 529 plan would interfere with them getting financial aid, that worry is gone now with the new rules,” said Stuart Siegel, president of college financial-aid service FAFSAssist.
A 529 plan is a great idea for parents and grandparents who place importance on a college education and want to save money when making financial contributions. Also, given the new rule change, if you are a grandparent, you now have the opportunity to contribute even more dollars towards college education. The benefits seem so advantageous! So, even if you think your grandchildren have many years until they are off to college, it’s never too early to start thinking about saving for it.
Related: When Should You Give Inheritance Money to Your Kids?