10 THINGS YOU SHOULD DO WHEN YOUR CHILD’S 529 ACCOUNT REACHES $20,000

Reaching a milestone of $20,000 in your child’s 529 college savings plan is a significant achievement. This accomplishment opens up new opportunities and strategic decisions to ensure the funds are used effectively and continue to grow.

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According College Savings Plan Network, in 2023, the average balance of a 529 college savings plan stood at $27,741, reflecting an increase from previous years. On average, Americans have saved $26,783 in their 529 accounts, with the typical account size exceeding $25,900. Notably, 30% of college savings are held in 529 plans, making them the most popular savings vehicle for education.

Here are ten important steps to take once your child’s 529 account reaches this milestone.

1. Review Your Investment Strategy

Assess Current Investments: Evaluate the current allocation of your 529 plan investments. Ensure they align with your risk tolerance and the timeline until your child starts college.

Adjust as Needed: Consider shifting to a more conservative investment strategy as your child approaches college age to protect the gains you’ve made.

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2. Estimate Future College Costs

Project Costs: Use college cost calculators to estimate how much more you’ll need to save. Consider factors like tuition, room and board, books, and other expenses.

Account for Inflation: Remember that college costs typically rise faster than general inflation, so factor this into your projections.

3. Increase Contributions if Necessary

Set New Goals: If your projections indicate a shortfall, consider increasing your contributions. Even small increases can make a big difference over time.

Automate Contributions: Set up automatic contributions to ensure consistent savings and take advantage of dollar-cost averaging.

4. Take Advantage of State Tax Benefits

Understand Your State’s Benefits: Some states offer tax deductions or credits for contributions to a 529 plan. Ensure you’re maximizing any available tax benefits.

Keep Records: Maintain detailed records of your contributions and any tax benefits you claim for future reference.

5. Explore Other Financial Aid Options

Research Scholarships: Encourage your child to apply for scholarships and grants, which can supplement the 529 savings and reduce the need for loans.

Understand Financial Aid Impact: Be aware of how your 529 savings may affect your child’s eligibility for need-based financial aid.

6. Plan for Non-Qualified Expenses

Identify Potential Costs: Determine any expenses that won’t be covered by the 529 plan, such as transportation or personal items.

Create a Supplementary Fund: Consider setting up a separate savings account to cover these non-qualified expenses without dipping into the 529 plan.

7. Monitor Account Performance

Regular Check-Ins: Review your 529 account’s performance at least annually. Look for any changes in fund management or fees that could impact growth.

Adjust as Needed: Be prepared to make adjustments if the account is underperforming compared to your expectations and goals.

8. Consider Prepaid Tuition Plans

Evaluate Options: Some states offer prepaid tuition plans that allow you to lock in current tuition rates for future education. Assess whether this option makes sense for your situation.

Diversify Savings: If you choose to use a prepaid plan, consider maintaining a separate 529 savings plan for non-tuition expenses.

9. Stay Informed About Policy Changes

Keep Up-to-Date: Stay informed about any changes in 529 plan rules, tax laws, or financial aid regulations that could affect your savings strategy.

Adjust Accordingly: Be prepared to adjust your savings and investment strategies in response to policy changes to maximize the benefits of your 529 plan.

10. Plan for College Withdrawals

Understand Qualified Expenses: Familiarize yourself with the IRS guidelines for qualified education expenses to avoid penalties on withdrawals.

Strategize Withdrawals: Develop a plan for withdrawing funds in a tax-efficient manner, spreading out withdrawals to match your child’s college expenses over the years.

Conclusion

Reaching the $20,000 milestone in your child’s 529 account is a commendable achievement that brings you closer to securing their educational future. By taking these ten strategic steps, you can ensure that the funds continue to grow, are used effectively, and provide the maximum benefit for your child’s education. Regularly reviewing and adjusting your strategy will help you stay on track and make the most of your investment.

Editor's note: This article was produced via automated technology and then fine-tuned and verified for accuracy by a member of GOBankingRates' editorial team.

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This article originally appeared on GOBankingRates.com: 10 Things You Should Do When Your Child’s 529 Account Reaches $20,000

2024-05-19T14:26:17Z dg43tfdfdgfd