How to Save For College With a 529 Plan

If saving for college keeps you up at night, you’re not alone. Private schools now cost close to $70,000 per year. Just looking at the numbers is enough to make my clients swallow hard.

My top recommendation is a 529 Plan: an investment account that helps you save for higher education while offering significant tax benefits. It’s hands down the best savings vehicle for college. Here’s how to make the most of it.

START EARLY TO MAXIMIZE YOUR INCOME AND TAX SAVINGS:

The earlier you start funding a 529 plan, the better. What makes this plan so powerful is that your earnings grow federal and state tax-free and won’t be taxed when you take the money out to pay for qualified college expenses. What’s more, the money you put into the New York state plan is deductible from your New York state tax return—up to $5,000 annually if you’re single and $10,000 if you’re married.

A 529 plan is flexible, too. You can use it to pay for college at any accredited university, K-12 tuition— even student loan repayments. And you can change the beneficiary to any immediate family member. You needn’t have specific schools on your radar before you get started. Open a commission-free plan directly on nysaves.org as soon as your child has a social security number. Get your money growing.

FUND IT CONSISTENTLY:

Fund the plan consistently, even if the market’s down. Like a 401(k) plan, a 529 plan offers investment options depending on your risk tolerance. You can diversify your portfolio and even set up the plan to be age-based, so it gets more conservative as college time approaches. If you’re worried about affording it, consider this: investing $250 a month for 18 years at 5.5% could be worth close to $92,000. That could pay for a year of college or close.

GET THE GRANDPARENTS INVOLVED:

Recruit benevolent family members to the cause! Grandparents often want to give gifts, and opening a 529 plan for their grandchild is the best way to do it. If they live in New York state, they’ll reap the benefit of tax-free growth and the tax deduction, too—which means more money available to give.

LOOK AT THE BIG PICTURE:

Above all, remember: that financial planning is holistic. Saving for college is an important piece of the puzzle, but ultimately, it’s just one piece—just like a 529 plan is one (albeit powerful) piece of how you’ll finance education. You need to fund your other goals, too.

Keep all your priorities in mind when deciding how to allocate resources. Most importantly, don’t sacrifice your retirement. You can borrow for college, as I often tell clients. But you can’t borrow for your retirement.