Best Financial Gift For Kids

In a previous post, I mentioned how savings bonds make a great financial gift for kids. Whether your purchase I Bonds or EE bonds, they are a solid conservative investment choice accumulating interest for your child over time. While savings bonds are a solid choice, they are not the best financial gift that you can give to a young child or teen. The best financial gift that you can give to your child is a 529 plan.

What Is The Best Financial Gift For Kids?

The best financial gift that you can give to your kid is a debt free college education. You can make this possible by gifting your son, daughter, niece, nephew, cousin, grandson, granddaughter, godchild, or loved one’s child with a 529 plan. A 529 plan is the best way to pay for college because it covers the cost of a college education leaving your child with little to no collegiate debt. Graduating college with no debt puts your child on the road to financial success.

What is a 529 plan?

A 529 plan is a tax advantaged college savings plan sponsored by a state that allows you to save money to pay for all future educational expenses. The primary use for 529 plans is to cover the cost of a college education including tuition, room and board, and educational fees. A 529 plan can pay the costs at both public and private universities. 529 plans can also cover kindergarten, elementary, middle, and high school educational expenses.

529 plans offer two options: Prepaid Plans and College Savings Plans. Skip the Prepaid Plan as it is more restrictive and limits college options to full coverage in state only. Prepaid plans can only be entered into during open enrollment period. Prepaid plans are not worth the hassle.

The best 529 plan to get is a College Savings Plan. College Savings Plans are also known as College Investment Plans.

A 529 College Savings Plan allows you to make contributions that grow over time. The funds are invested in mutual funds and can be withdrawn to pay for the education of the child. Funds are income tax free as long as they are used to pay for the educational expenses of the beneficiary. A College Savings Plan can pay for both undergraduate and graduate education. The funds can also be applied at technical and trade schools as well.

What does a 529 College Savings Plan cover?

529 College Savings Plans cover any educational related expense including tuition, room and board, computers, equipment, books, supplies, software, and etc.

When can you start a 529 plan?

You can start a 529 plan before the birth of the child. You can start a 529 College Savings Plan and name yourself as the beneficiary. Then after the birth of the child, you can name the child as the beneficiary.

Who can start a 529 Plan?

Anyone over the age of 18 can start a 529 plan! You can start a 529 plan for a family member’s child (kids, grandkids, relatives, distant relatives), a friend’s child, or for yourself. All you have to do is name the child as the beneficiary of the plan. Anyone with a Social Security number can be the beneficiary of a 529 plan.

Who controls the 529 Plan?

A 529 plan is completely controlled by the account owner until the money is dispersed. The account owner controls all of the investment decisions and how the funds are dispersed. The beneficiary is merely the recipient of the funds.

Are all 529 Plan withdrawals tax free?

Yes, if used for qualified educational expenses. All withdrawals that are used to pay for education are free from taxes. If money is taken out of a 529 College Savings Plan for any purpose other than education, the money is then subject to federal income taxes, state taxes, and a 10% penalty tax.

Do I have to invest in my state’s 529 Plan?

No, you can invest in any states 529 College Savings Plan. Pick the state who has the investment options and plan administrator that you like the best.

What information do I need to open an account?

As the account owner you need to list the following information:

  • Name
  • Social Security Number
  • Date of Birth
  • Mailing Address
  • Email Address
  • Phone Number

You need the beneficiary’s:

  • Name
  • Date of Birth
  • Social Security Number

How do I start a 529 Plan?

You can start a plan with any plan administrator including Fidelity, T Rowe Price, Vanguard, Fidelity, Charles Schwab. You can also check with your home state’s agency website. For example, Maryland 529 plans can be found at Maryland529.com.

A 529 plan is the best financial gift to give a young kid liberating them from dealing with college loans years after graduation.