The cost of a college education continues to increase.
According to the College Board, the average cost of a four-year college education increased more than 51 percent between 1999 and 2009. In 2009 the average annual cost of room, board and tuition at a private four-year university was about $35,000, and a public four-year university cost about $15,000. A 529 plan can be an effective way to save for a college education for a child, grandchild or even the child of a close friend. Once someone has opened a 529 plan, both the contributions and the earnings can grow tax-free, and the beneficiary can use the money for educational expenses.
Instructions
1. Decide which state in which to open a 529 account. The benefits of opening a 529 account in your home state include possible state tax deductions for contributions, state tax-deferred earnings and state tax-free withdrawals. Some people choose to contribute to 529 plans located in other states. Advantages of this can include lower initial contributions, higher maximum total contributions and different investment options.
2. Name a beneficiary for your 529 account. A beneficiary can be any United States citizen. There are no age restrictions on 529 plans and one person can be named the beneficiary of several different plans. It is even possible to open a 529 account and name yourself as the beneficiary. Some people choose to do this before having children and then transfer the account to a child's name later.
3. Choose an investment plan. Possible options include an age-based plan, equity options, fixed income options and blended options. Age-based plans automatically adjust the balance of riskier and more conservative investments as the beneficiary ages or gets closer to using the money. Equity, fixed income and bond options are each focused on stocks and bonds to varying degrees.
4. Make regular contributions to assure the beneficiary will have the money he or she needs. Some people choose to set up automatic contributions to their 529 plan so they do not need to remember to contribute.
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