Saving early matters | NY 529 Direct Plan (2024)

FAQs

How much is $100 a month in a 529 for 18 years? ›

This chart shows that a monthly contribution of $100 will compound more if you start saving earlier, giving the money more time to grow. If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.

Investment choices can be limited

But 529 plans are administered by each individual state, and the plans may not offer an attractive investment opportunity, depending on which plan you choose. For example, some state plans may offer only high-cost funds or a limited selection of funds.

Limited control on how money gets invested

If you're interested in investing on your own without the help of an advisor, a 529 plan may not be right for you. 529 plans don't allow for self-directed investments, meaning you don't get as much control over what you're investing in.

In June 2022, the average 529 balance was $25,903. In June 2021, the average 529 balance was much higher at $30,287. The vast majority of 529 funds are in 529 college savings plans, not 529 prepaid tuition accounts.

Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.

In most states, that means age 18, though in some states the age threshold may be higher. The custodian can't change the beneficiary or account owner. Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan.

It's easy to see why Americans don't embrace 529 plans. They often have limited investment options, high fees, complicated rules and anxiety-producing investment risks. All that said, the plans may ultimately be worthwhile for most families, as long as parents choose carefully. Focusing on fees is crucial.

With the new regulations, 529 plan account owners or beneficiaries can roll over 529 funds into a beneficiary-owned Roth IRA tax-free and penalty-free as of January 1, 2024, subject to the limitations described below. If you qualify, this can be a great way to help kick start a beneficiary's retirement savings.

Some 529 alternatives include using a custodial account, Roth IRA or Coverdell Education Savings Account.

Thanks to its flexibility and investment choices, a Roth IRA account is a great college savings tool. But in many situations, a 529 savings plan is the better choice. Tax Specialist | Personal finance reporter for 16+ years, including work for the Wall Street Journal and MarketWatch.

What happens to 529 if kid doesn't go to college? ›

Leave the account intact.

If your child is simply not sure about college or perhaps wants to delay applying, you can keep your 529 plan intact until the child does use it for qualified education expenses.

However, some families face another problem – they saved too much money in a 529 college savings plan. It can be shocking that it's actually possible to save more money than is needed to pay for college education expenses. But it's more common than you might think.

Tax benefits and a new Roth IRA feature make 529 college savings plans attractive, but they're not a one-size-fits-all option. There are many different approaches to saving for college, but 529 plans are used by more Americans than any other option — 30% of Americans use a 529 plan.

They are one of the more powerful tools that high-net-worth and ultra-high-net-worth families can utilize, especially if they have a lot of kids and grandkids.” 529 plans allow an adult to set aside money for a beneficiary to use for education.

The Medium column assumes a $15,000 annual contribution every year until 18 with a 6.2% compound annual return. The goal is to have saved $500,000 per child by the time he or she begins college. After age 18, $100,000 a year is to pay for college until the 529 plan goes to 0 at age 25.

529 plans do not have specific withdrawal deadlines. A 529 plan account owner is not required to take a distribution when the beneficiary reaches a certain age or within a specified number of years after high school graduation, and funds can remain in the 529 plan account indefinitely.

The 5-Year Election

Individuals may contribute as much as $90,000 to a 529 plan in 2024 ($85,000 in 2023) if they treat the contribution as if it were spread over a five-year period. The 5-year election must be reported on Form 709 for each of the five years.