College savings: A gift that can last a lifetime
February 06, 2015
If your child has an important event coming up—such as a birthday, religious milestone, or simply heading off to elementary school—consider encouraging friends and family to celebrate by making an investment in his or her future.
These days, many people feel that a college education is virtually essential for lifelong success, but the simple truth is that the costs can be enormous. There's no need to feel overwhelmed, however. College can be affordable if you plan ahead and take action. And one of the most effective ways to save for college is through a 529 savings plan.
When you invest in a 529 plan, you can benefit from tax advantages,* high contribution limits, and investment flexibility—a combination you won't find with other college savings options. It's no wonder their popularity has surged in recent years. As of December 2013, American families had almost $230 billion invested in 529 plan accounts, according to the College Savings Plans Network.
If you're ready to get started, you can open a 529 account with just a few simple steps.
Encouraging gifts to an existing 529
If your child already has a 529 plan account with Vanguard, Ugift® lets you send contribution instructions to loved ones by e-mail or regular mail.
To use Ugift:
1. Log on to vanguard.com and select the appropriate 529 account number.
2. Click the Ugift icon or link, then follow the step-by-step instructions.
Be aware that contributing to an existing 529 account means the contributor won't be able to take advantage of the tax benefits normally available to 529 plan account owners.
More about the benefits
When it comes to calculating your Expected Family Contribution (EFC)—part of the Free Application for Federal Student Aid (FAFSA)—the money you save in a 529 account gets more favorable treatment than other types of assets. (To calculate your EFC, use this worksheet from the Federal Student Aid Office.)
Also, qualified distributions from a 529 account owned by a parent or student aren't counted as income in the FAFSA financial aid eligibility calculation. That means if your child uses money from a 529 account for tuition payments and he, she, or you (as the parent) are the account owner, it won't be included as income when the Federal Student Aid Office and higher education institution determine next year's aid package. However, distributions from accounts held by grandparents are included as income.
Other family members can benefit as well. Proceeds from a 529 plan account can be used to pay qualified education expenses for other family members, as defined by the IRS, of the original beneficiary without adverse tax consequences. For example, if the child named as the beneficiary doesn't use all the money in the account or decides not to go to college, a sibling can use the assets. You'll want to check your plan's rules for more information.
Givers get a gift too
When someone opens a 529 on behalf of a child, he or she can also enjoy some tax advantages. To date, 34 states and the District of Columbia offer tax incentives for 529 contributions. State tax deductions and contribution limits vary by state, so check the plan's website or program description for details.
How Vanguard can help
There are a variety of 529 plans available to suit your needs. The Vanguard 529 College Savings Plan is sponsored by the state of Nevada, but it's open to any investor. It offers 3 age-based investment options and 19 individual portfolios, as well as:
- Simplified investing with an automatic savings plan.
- Low costs and fees so you can keep more money for tuition and other education expenses.
- Vanguard's experience as a leader with 29 direct-sold plans, and almost $55 billion in total managed assets.
Looking for other options? Many state-sponsored plans offer Vanguard investments and can be opened with as little as $25, such as the College Savings Iowa® 529 Plan.
Need to do a little homework first? Visit our 529 section to learn the basics and use our interactive planning tools to explore your options and determine your savings goals and costs. Or simply call a Vanguard education specialist at 866-734-4533. We'll help you learn the ABCs of 529s and get your child on track to meet his or her college needs.
*The availability of tax or other benefits may be contingent on meeting other requirements.
- All investing is subject to risk, including the possible loss of the money you invest.
- For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.
- For more information about The Vanguard 529 College Savings Plan, call 866-734-4533 or obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor and Underwriter.
- If you are not a Nevada taxpayer, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.
- The Vanguard 529 College Savings Plan is a Nevada Trust administered by the Board of Trustees of the College Savings Plans of Nevada, chaired by the Nevada State Treasurer.
- The Vanguard Group, Inc., serves as the Investment Manager and through its affiliate, Vanguard Marketing Corporation, markets and distributes the Plan. Ascensus Broker Dealer Services, Inc., serves as Program Manager and has overall responsibility for the day-to-day operations. The Plan's portfolios, although they invest in Vanguard mutual funds, are not mutual funds. Investment returns are not guaranteed and you could lose money by investing in the plan.
- Ugift is a registered service mark of Ascensus Broker Dealer Services, Inc.