01 Sep Tips for Maximizing Your 529 College Savings Account Returns
The 529 college savings account is the best tax-advantaged way to save for children’s college and other educational expenses. Any gains aren’t taxed so long as they’re used for qualifying educational expenses (such as college tuition and books). Here are five tips for maximizing your gains so that you get the maximum benefit from this type of account.
Take Any Available Tax Deduction
The contributions made to your state’s 529 college savings account might be tax-deductible. There isn’t any federal tax deduction for contributions, but some states allow you to deduct contributions from your reported state income. For example, New York allows this if you’re a resident, and contribute to the state’s specific 529 program.
Make sure you take advantage of any available state tax deduction, as this is effectively an immediate return on your contributions. A deduction at a 5% tax rate is akin to an immediate 5% return.
Choose the Best Available Investment Options
If your state doesn’t provide a tax deduction for contributions, you’re welcome to open a 529 account in any state regardless of where you reside. Some states have better investment options than others. Consider opening an account in a state that you believe offers the best investment options. (You probably don’t want to do this if your state offers a tax deduction.)
Use a Credit Card That Contributes to a 529 Account
Some credit cards offer rewards in the form of 529 account contributions. The reward contributions can be especially helpful if your income doesn’t allow you to maximize the annual contribution yourself. You won’t pay for all of college from reward contributions, but every contribution is principal that you can grow.
Manage Risk Wisely as Your Children Grow Up
A general guideline when investing is to correspond your risk to your investment timeframe. Most advisors recommend taking more risk when you have a long horizon, as this helps you maximize growth. Reducing risk as your horizon nears better preserves your capital even if the markets take a downturn.
As your children approach college age, de-risk as you believe is appropriate.
Pay Tuition Through a 529
If your state is one that allows a tax deduction for contributions, continue to use the 529 throughout the college years. You might be able to make contributions, and then quickly use them to pay college tuition as it becomes due.
Get Help With College Finances
If you need help financially preparing for college, contact us at Accolade Financial. We can answer questions on everything from 529 college savings plans to college tuition projections. We’re here to work with you so that college is affordable. Get in touch with us today.