If you are saving money for your kids to go to school, or have plans to go back to school yourself, you know one thing: Education is really expensive.
However, there are ways for anyone–even self-employed professionals or freelancers–to start saving for education. One popular way of saving for school are 529 plans, which can offer some significant savings.
Almost Millions spoke with Marcos Cordero, CEO of Gradvisor about 529 plans. Gradvisor helps companies around the United States set up 529 education savings plans for their employees, and he has some great advice for freelancers and small businesses too.
In short? A little bit of planning can save a whole lot of money for education.
529 Plans For The Self-Employed: What’s A 529?
A 529 plan is set up by a state or educational institution, and offers tax advantages and other benefits to make it easier to save for college, university, or education.
“Basically, it operates similarly to a Roth IRA post tax dollar,” Cordero says, except when money is withdrawn it has to be used for higher education. Money put away in a 529 accrues tax free.
Cordero adds that one of the best part about 529 plans is that contribution limits are extremely high. However, the exact limits vary from state to state and plan to plan.
The annual limit you can invest in a plan differs from plan to plan.
There’s one big advantage to 529s as well: They don’t have to be just used for college or university. They can also be used for things such as extension learning or trade schools to learn coding or other tech skills.
529 Plans For The Self-Employed: Signing Up For A 529
If you run a small business that has multiple employees, Gradvisor lets you set up 529 savings plans for your employees.
For freelancers, consultants, and other solo professionals, Cordero recommends exploring Savingforcollege.com, which offers an extensive directory of 529 plans from different sources.
529 Plans For The Self-Employed: State-To-State Differences
One of the biggest things you have to plan for with a 529 are state-to-state differences. Depending on the state in which you live, your 529 benefits and options may be very different.
Cordero says that this “Adds a lot of the complexity, and that is a value driver Gradvisor has. There are over 90 529 plans and a lot of investment options for those plans, but they vary by state.”
For instance, California has a high state tax but no tax deduction up front for 529 plans. On the other hand, other states like New York have extra incentives which make deductions tax deductible at the state level. As Cordero puts it, “That’s like an immediate return on your money.”
For more information on 529 plans, speak with your accountant or check out the resources below.
529 Plans For The Self-Employed: Other Resources
- The Best Way to Save for College: A Complete Guide to 529 Plans 2015-2016 (Joseph F. Hurley)
- Paying for College Without Going Broke, 2017 Edition: How to Pay Less for College (Princeton Review & Kalman Chany)
- Gradvisor (Official Site)
- 529 Plans: Questions & Answers (IRS)
- Saving For College: 529 Plans (Nerdwallet)