Saving for College: Frequently Asked Questions
Saving for a child's education works best when you understand the tools available and begin early. These answers cover the basics.
What is a 529 plan?
A 529 plan is a state-sponsored savings program for education. Contributions are made with after-tax dollars, the money grows tax-deferred, and withdrawals are federal-income-tax-free when used for qualified education expenses. Some states, possibly including Georgia, offer a state tax benefit for contributions, so check the current rules for your state.
Do I have to use my own state's plan?
No. You can usually choose a plan from any state, though your own state may offer benefits for using its plan. Compare fees, investment options and past performance.
What counts as a qualified expense?
Typically tuition, mandatory fees, books, supplies and equipment, and room and board for students enrolled at least half-time at eligible schools. Rules have expanded over time, for example to cover certain K-12 tuition and apprenticeship programs, so confirm current details with the plan or at irs.gov.
What happens if my child does not go to college?
You can change the beneficiary to another family member, and you can leave the money in place for later use. If you withdraw for non-qualified purposes, the earnings are generally subject to income tax and an additional penalty. Exceptions exist, such as when the beneficiary receives a scholarship.
How does a 529 plan affect financial aid?
A parent-owned 529 is generally counted as a parent asset, which has a smaller effect on aid eligibility than assets held in the student's name. Rules differ across schools and aid formulas.
What other options do I have?
Education savings accounts have their own contribution limits and income restrictions. Ordinary savings or brokerage accounts offer flexibility but no special tax treatment. Custodial accounts transfer to the child at the age set by state law and can reduce aid eligibility.
How much should I save?
There is no universal figure. Estimate the likely cost and decide how much of it you want to cover from savings. Regular monthly contributions, even modest ones, add up over many years. Remember not to sacrifice your retirement savings to do it.
If you would like help comparing options, see our tax planning services or send us a message.
This article is general information, not tax, legal or investment advice for your specific situation.