529 Plan Strategies for Parents Who Are Getting A Late Start

Is It Too Late to Start a 529 Plan?

Absolutely not! Even if you're starting later than planned, strategic planning combined with disciplined execution can still yield substantial progress. Here are practical strategies to maximize your late start.

The One-Third Rule: A Balanced Approach

An effective way to manage college savings when starting late is the one-third rule. This divides the cost of college into three parts:

• One-third from savings: Open a 529 plan immediately and contribute as much as you can.

• One-third from current income: Plan to pay part of the tuition from your earnings during your child’s college years.

• One-third from loans, scholarships, and grants: Utilize financial aid, 529 student loans, and scholarships.

By spreading the costs, you can make the financial burden more manageable and less stressful.

Involve the Entire Family

You don't have to boost college savings alone. Involve your family:

• Communicate Goals: Discuss the college savings plan with family members. Grandparents, aunts, uncles, and siblings can contribute gifts or assist fundraising efforts.
• Use 529 Gifting Platforms: Some state 529 plans include tools that allow family and friends to contribute directly.

Why Choose a 529 Plan?

529 plans provide tax advantages and flexible options for growing your college savings. The amount of money you make on the college savings plan investment is dependent on the contributions you make and the investment options you select.

529 plans offer tax advantages and flexible options for growing college savings. Here are tips to maximize your 529 plan:

Front Load Contributions

• Lump Sum Contributions: If feasible, contribute a lump sum early to maximize compounding interest.

Boost Short-Term Savings

• Aggressive Investments: If your risk tolerance allows, focus on high-yield investments initially, switching to conservative investments as college nears.

Leverage Legislative Benefits

• Secure Act 2.0: Starting in 2024, you can roll over unused 529 funds into a Roth IRA, providing long-term benefits.

FAFSA and 529 Plans

Assets in a 529 plan owned by parents are assessed at a maximum of 5.64% of their value for financial aid purposes, which minimally impacts financial aid eligibility.

529 for Student Loans

You can use up to $10,000 from a 529 plan to repay qualified student loans without penalties. This limit applies to each beneficiary and their siblings.

Can I Use a 529 Plan to Pay for Private Student Loans?

Yes, under the SECURE Act, you can use 529 plan funds to repay both federal and private student loans. It's important to note that these funds are specifically restricted to student loan repayment and cannot be used for other consumer debts such as personal loans or credit card balances from Congress.gov.

Enhance Your 529 Plan Contributions

Paidly allows employers to contribute directly to their employees' children's 529 plans. This added assistance can help you catch up quickly.

Taking Action for a Late Start

Even if you’re starting late, these strategies can help build a solid college funding plan:

• Follow the one-third rule to distribute financial burden evenly.
• Involve the entire family in pooling resources.
• Consider a 529 plan with front-loaded contributions and aggressive investments.
• Stay informed about legislative change like the Secure Act 2.0 to maximize benefits.

By using these tips strategically, you can secure your child's educational future while maintaining financial stability.