This is the 'ideal method' for college savings, says one CFP
, and various tax benefits of each plan. The best option for the average person is typically an age-based portfolio, which will reduce risk as the child approaches college.Step 2: Set up automatic monthly contributions, some as low as $25, but the key to growing the balance, if you're not front-loading the account, is contributing regularly.
"Save consistently via automatic monthly contributions from your bank account to the 529 plan," Safran said."Being consistent with contributions has huge rewards." Each plan has a different investment structure, but Safran said assuming a 6% return rate and 5.5% inflation, a family would need to make monthly contributions of $1,200 to the account from when the child is born until age 18 to have enough to fund a $50,000-a-year, four-year college education.
Annual contribution limits for most 529 plans are high, starting at $235,000 in some states, though any contribution above $15,000 will incur a gift tax.Contributions to 529s are considered"gifts" by the IRS, no matter who they come from, so savers looking to avoid payingin 2019 are limited to the annual maximum gift of $15,000 for each child .
The beneficiary is the student who receives the money, but it can be changed. If one child decides not to go to college, goes to a cheaper school than expected, gets a full scholarship, or for some other reason doesn't use all of the money, you can simply change the beneficiary on the account and give those funds to another child … or even to the parent, if they choose to go back to school.Personal Finance Insider offers tools and calculators to help you make smart decisions with your money.
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