New mem­ber of fam­ily? Think about 529 plan

South Florida Sun-Sentinel (Sunday) - - People On The Move - Steve Rosen Kids & Money Ques­tions, com­ments, col­umn ideas? Send an email to [email protected]

The text mes­sage from my old­est son landed in the wee hours of a re­cent Fri­day morn­ing an­nounc­ing the ar­rival of a baby girl.

As ec­static new mem­bers of the grand­par­ents club, my wife and I made a quick dash three-hour drive to meet the new­est mem­ber of our fam­ily. When we ar­rived at the hospi­tal, we were di­rected to a fifth-floor room.

What was the first thing I saw be­fore we en­tered the room to meet our grand­daugh­ter for the first time? It was the room num­ber, 529.

What was the first thing that came to mind? Col­lege sav­ings plans, of course. How ap­pro­pri­ate.

And what was one of the first ques­tions I asked my son now that he and his wife were of­fi­cially par­ents? You are plan­ning to open a 529 account, aren't you?

When it comes to sock­ing away money for col­lege, there's a lot to like about state­spon­sored 529 sav­ings plans. The ac­counts are easy to open, buy­ers have a num­ber of in­vest­ment op­tions, fed­eral and in most cases state tax breaks are avail­able, and the fed­eral govern­ment re­cently ex­panded ways to use the money.

If you have a lit­tle one in your fam­ily, this is the per­fect time to open a 529 account. You have about 18 years to salt away money.

There are no an­nual con­tri­bu­tion lim­its to 529s. How­ever, there are max­i­mum ag­gre­gate lim­its that vary by plan.

One of the ad­van­tages of a 529 is that you can ag­gres­sively in­vest in stocks when your child is at a young age and there's time for earn­ings to com­pound.

But don’t rush into this in­vest­ment de­ci­sion un­til you’ve done some re­search on how your state plan stacks up with oth­ers. Ask about fees, min­i­mum in­vest­ment re­quire­ments, and in­vest­ment choices.

When it comes to fill­ing out pa­per­work, there are rel­a­tively few hoops to jump through es­pe­cially if you open an account di­rectly through the state rather than with a brokerage firm.

The col­lege sav­ings plans, while pop­u­lar, aren’t the only game in town, so you may want to com­pare Coverdell ed­u­ca­tion sav­ings ac­counts, U.S. Sav­ings Bonds, and other in­vest­ments and their tax im­pli­ca­tions.

State-spon­sored 529 plans were cre­ated more than 20 years ago to help fam­i­lies sav­ing for col­lege keep up with fast-ris­ing tu­ition. Dis­tri­bu­tions from these ac­counts are tax-free for an ever-wider range of qual­i­fied col­lege ex­penses, in­clud­ing tu­ition, room and board, text­books, en­roll­ment fees and com­put­ers and soft­ware.

The 2018 Trump tax re­forms added a pro­vi­sion that al­lows fam­i­lies to with­draw up to $10,000 a year from a 529 account to pay tu­ition for kinder­garten through 12th grade with­out fed­eral taxes or penal­ties.

At last count, 34 states plus the Dis­trict of Columbia al­low a tax de­duc­tion or credit to res­i­dents, usu­ally to their home-state plan. Some states of­fer the tax breaks even if the money is in­vested in an­other states' plan.

As I’ve noted in re­cent col­umns, some states of­fer so-called pre­paid tu­ition 529 ac­counts that lock in fu­ture tu­ition costs at to­day’s rate. More than 300 pri­vate col­leges also par­tic­i­pate in a 529 pre­paid tu­ition pro­gram.

Al­ready feel­ing over­whelmed? There are am­ple re­sources on­line or at the li­brary to tap into that are strong on the me­chan­ics and in­vest­ment strate­gies.

One of my fa­vorites is the www.sav­ing­for­col­lege.com web­site or its com­pan­ion book, the “Com­plete Guide to 529 Plans.”

MARIA SBYTOVA/DREAM­STIME

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