In the last decade, 529 plans have quickly become a way for parents to help their children attend college. Not all 529 plans are the same, but some of them are high-quality high-class investments which are a great way to save money for your children’s education, even if they have not been born yet. We’re going to look at the example of New York’s 529 plan, and show why opening one of these accounts is a great thing to do.
First, the New York’s 529 plans are managed by Vanguard, which is a high-class high-quality investment company, and it’s a very well run company. Vanguard has one of the largest portfolios of mutual fund investments in North America, and they really have some good choices to pick for mutual funds.
Secondly, there are very low minimums and no fees. You can start with $15.00 to start the account and $15 for any investment. This is very competitive if you put $5000 a year away and only have to spend $15 to invest it, you’re doing a pretty good job relative to a lot of other investment options.
The New York 529 plan is especially beneficial to New Yorkers. Residents of the state can deduct up to $5000 in their state income tax, and the investment grows tax-deferred on top of the fact that they are exempt from income tax as long as the funds are used for an educational purpose.
A lot of 529 plans do not offer a lot of good investment choices. They vary from state to state, and they are certainly not all the same. You should carefully look into what options are available for investments inside the specific 529 plan you are looking at. In the state of New York, there are 15 individual mutual funds from Vanguard that you can choose from. Many of them are very good investment choices. The expense ratio starts at about 0.6% and decreases as more assets are added to the fund.
Finally, these accounts are extremely flexible. You can start out having the beneficiary as yourself, but you can change it to any member of the family at any time. If your children, spouse, or relatives are going through an education, you could withdraw the money and use it for their education without any tax consequences.
Since 529 plan benefits are now permanent, now is as good of a time as ever to start investing for your children’s education, even if they’re not born. The sooner you start the less money overall you will have to put in because of the power of compound interest! Good luck saving!