Wondering how a 529 plan can help you save for your child's future? First, you'll need to know some basics.
What is a 529 college savings plan?
It's a type of investment account you can use for higher-education savings. 529 plans are usually sponsored by states.
Where does the name come from?
It comes from Section 529 of the Internal Revenue Code, which specifies the plan's tax advantages.
What makes these savings vehicles so powerful?
Tax savings. Your earnings grow federally tax-deferred, qualified withdrawals are tax-free,* and some states (like New York) have other tax benefits as well.**
Owners and beneficiaries
Who can open a 529 plan account?
Just about anybody can open a 529 account—parents, grandparents, other relatives, friends—as long as he or she is a U.S. citizen or a resident alien. As an account owner, you'll pick investments, assign a beneficiary, and determine how the money is used. If you're a New York State taxpayer, you can also benefit from the state tax deduction.**
How much financial knowledge do I need to start investing in the plan?
There are options for every level of investor which are described in detail in the Disclosure Booklet and Tuition Savings Agreement. Your choices will depend on how comfortable you are with risk and when you expect your student to need the money.
What's a beneficiary?
A beneficiary is the future student, or the person you open the account for. You can open an account for a child, grandchild, friend, or even yourself. The only rule is that the beneficiary must be a U.S. citizen or resident alien with a valid Social Security number or other taxpayer identification number.
What happens if the beneficiary doesn't want to continue his or her education?
If that's the case, you have a couple of options. You can stay invested in case he or she decides to attend school later, as there's no age limit on using the money. Or you can change the beneficiary to an eligible family member.
You can also withdraw the money for other uses. However, a 10% penalty tax on earnings (as well as federal and state income taxes) may apply if you withdraw the money to pay for nonqualified expenses.
Using the money
How can I use the money in a 529 account?
You can use it to pay for tuition; books; supplies; equipment; expenses for the purchase of certain computer equipment, software, and computer-related services; and certain room and board fees—really anything that's considered a qualified higher-education expense.
Can 529 accounts only be used to pay for college?
No. Your 529 account can be used to pay for qualified higher-education expenses at any eligible educational institutions, including:
- Postsecondary trade and vocational schools.
- 2- and 4-year colleges.
- Postgraduate programs.
Does it matter what state the beneficiary's school is in?
No. Although you'll be investing in a 529 plan sponsored by the State of New York, the student can attend any eligible educational institution (including eligible trade and vocational schools) in the United States or abroad.
How much does it cost to start?
There are no fees to open an account in New York's 529 College Savings Program Direct Plan, and there is no minimum contribution amount to get started. Once you have an account, you'll pay only $1.50 in fees per year for every $1,000 you invest in the Direct Plan (0.15% total annual asset-based fee).
How much can I invest?
529 account contribution limits are generally high—ranging from $200,000 or more, depending on the state. For the Direct Plan, you can contribute up to $520,000 on behalf of one beneficiary. This amount includes all New York-sponsored 529 savings accounts held for the same beneficiary.
What if I don't have time for this?
We can see how you might feel that way—most parents are pretty busy these days. But starting to save early can make a big difference, and after you've completed your research, opening an account only takes about 10 minutes.
Need more information?
You can find more answers on our FAQs page. Or you can call us at 877-NYSAVES (877-697-2837) on business days from 8 a.m. to 9 p.m., Eastern time.