You Should Invest in a 529 College Investment Account

A surprising number of American families do not invest in 529 college savings plans, even though their deposits are tax-deductable and their income is tax-free. While everyone seems to have their own reasons to not use these funds, the experts are clear on this point: whether your child is just-born or already talking about college, a 529 college fund is an ideal way to fund his education.

photo credit: B a m s h a d

529s are a solid investment strategy, offering low-cost accounts and decent interest rates. In addition, 33 states and the District of Columbia, allow you to write off all contributions, reducing your tax burden. To translate these benefits into cold, hard numbers, consider the following:
If you’re in the 28% tax bracket, and begin invest $200 monthly in a low-cost 529 (0.38%) for your five-year-old, you’ll have saved $39,100 by his 18th birthday. In turn, if you invested the same monthly amount in an equally low-cost taxable account, you’ll have $36,200 by your child’s 18th birthday, or $2,900 less than the 529 account. Be careful, though, if you invest in a high-cost 529 (1.65%, for example), your savings could easily equal out to less than in a taxable account.
To save for your child’s college education, it’s hard to beat a low-cost 529. Maximize your profits by buying direct and don’t settle for any more than 0.5% annual expenses.