Saving for College Matters: Consider Investing in Your State’s 529 Plan

Investing

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

 

By Brandon Tvedt

In today’s increasingly interconnected, competitive world, education is becoming progressively more important in determining which individuals will have a leg up on others during their journey through life.  Higher rates of education are positively correlated with all sorts of real benefits, such as higher lifetime earnings, greater access to health care service, lower rates of poverty and unemployment, and more.

However, as the benefits of education have become more apparent, the costs of attaining one have risen as well, making college difficult to afford for some individuals.  If you are worried about being able to afford tuition and other associated costs for your children, you may want to consider starting a responsible investment program designed to help save for college expenses as soon as possible.

If you have no clue where to start in terms of evaluating the different financial instruments available to help you begin saving, consider starting your search by taking a look at responsibly managed investment in a something like your states’ 529 plan.  This can help ensure that your child won’t be deprived of the essential opportunity to educate themselves.  Remember – it is never too early to start saving for higher education.

So, what is a 529 plan?

In a nutshell, it is a financial instrument that is directly operated by a state, designed for the benefit of local residents, and intended to assist them in securing funds for explicit use towards higher education.  Almost all states have at least one version of a 529 plan, and some have several.  For more specific information, look up what your state offers, or consult with a professional financial advisor.

Broadly, these plans can be categorized into two separate groups; savings plans and prepaid plans.  States can choose to operate one kind of plan or the other, or to offer both.  Savings plans are operationally quite similar to instruments like IRAs or 401(k) plans; the value of the account fluctuates according to the performance of the options.  Prepaid plans let you instead put all or part of the cost of a public college education down in advance.

State by State Plans

Typically, plans of both kinds are completely convertible between states.  That is to say it is entirely acceptable to apply funds invested in one state towards expenses incurred from attending school in a different state entirely.  Most 529 plans, despite state of origin or type, offer extreme flexibility, substantial rates of deposit, and low-maintenance.  If someone in your household will be attending college, you should definitely speak with your financial advisor about the viability of an investment into one of your states’ 529 plans.

 

 

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.