Financial Future-Proofing: Is a 529 Plan Right for Your Family?

Dec 1, 2023 | News

From the moment your little one arrives, you’re already imagining waving them off to college.

As a parent, planning for your child’s future by investing long-term in their education is one of the most important financial decisions you’ll make.

However, with the cost of living at an all-time high and the costs of college tuition showing no signs of coming down from the stratosphere, it’s becoming increasingly difficult for parents across the United States to secure the kind of future they want for their kids.

That’s why it’s never been more important to have a strategy in place to ensure those dreams of sending your child off to university can become a reality.

What is a 529 savings plan?

A 529 education plan is a tax-advantaged savings account specifically designed to make affording future education expenses more manageable for families.

Typically sponsored by individual states, they offer various investment options to grow your savings over time, so when the time comes, you’ve got the finances ready to afford tuition and other school expenses.

Benefits of starting 529 fund

In recent years, opening a 529 account has become increasingly popular among young families due to the many benefits they provide.

1.   Tax advantages

One of the main draws of a 529 plan is its tax advantages.

Contributions to a 529 plan are made with after-tax dollars, but earnings in the account grow tax-free, so all the money accumulating in the fund can be used for its intended purpose without paying tax later.

As well as this, withdrawals for qualified education expenses, such as tuition, books, and accommodation are tax-free, creating more savings over time.

2.   Flexibility of use

While 529 funds are primarily designed for higher education expenses, they offer flexibility in how you can use them.

In recent years, the scope of qualified expenses has expanded to include K-12 education and apprenticeship programs. This is great news for kids interested in learning skills over going the academic route.

3.   Accumulate large savings

Most 529 accounts have high contribution limits that vary from state to state, allowing families to save substantial amounts for their children’s education.

While contributions are considered gifts, you can contribute large sums up to the gift tax exclusion amount without incurring gift taxes, helping with estate planning.

4.   Low impact on financial aid

Even if your child has an open 529 account, they can still seek financial aid to help them afford their studies when the time comes.

While a 529 plan is considered an asset for financial aid purposes, it has a relatively low impact on their eligibility compared to savings accounts or investments in the parent’s name.

Considerations for your family before starting a 529 plan

While 529 plans undoubtedly offer numerous benefits, that doesn’t necessarily make them the right choice for every family.

It’s important to consider all the elements that will impact your 529 savings plan, particularly what state you live in.

Different states offer different state tax benefits, while certain 529 plans only allow you to use your savings on schools within the state, so it’s worthwhile doing your research when planning for your child’s future.

When it comes to finances, we can never predict the future, so it’s always wise to have a secure backup plan to support your family.

If you’re unsure if a 529 savings account is the right choice for your family, at Union State Bank, we offer a variety of investment and savings plans to ensure you can find the right path for your financial future.

Invest in your child’s future with a Union State Bank 529 account

A 529 plan can be a valuable asset to your child’s future and offers peace of mind, knowing they can access the education they deserve.

However, whether it’s right for your family depends on your circumstances, financial goals, and state-specific considerations.

Before making any decisions, consult with one of our helpful financial advisors today.

With branches in Florida and Alabama, we’ll help you understand how a 529 plan can benefit your family and navigate your first steps toward a brighter future for your child.