How to Start Your Child’s College Fund - Nationwide (2024)

FAQs

How to Start Your Child’s College Fund - Nationwide? ›

Start saving for your child's college early

A dedicated 529 Savings Plan is one of the most tax-beneficial and efficient ways to build a college fund for baby. A 529 plan provides tax-deferred growth, allowing your investments to grow without having to pay taxes on them.

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.

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

Though there is no federally mandated minimum deposit required to open a state-administered 529 plan, each state has set its own requirements. State minimums range from $0 to as much as $3,000, depending on which plan you choose.

So if your child changes their mind down the road, your savings will still be available. Effective January 1, 2024, 529 funds may be rolled over to a Roth IRA in the name of the beneficiary of the 529 plan.

For in-state, four-year, public college: minimum $300 per month. For out-of-state, four-year, public college: minimum $500 per month. For private, non-profit, four-year college: minimum $650 per month.

Your college savings goal should be $60,400 for a public, in-state college; $95,600 for a public, out-of-state college; and $118,900 for a private college. If these numbers seem daunting, don't worry. There are ways to break it down into an achievable monthly contribution.

Coverdell accounts and 529 plans are the most popular options for college savings, but custodial trust accounts structured as a Uniform Gift to Minors Act (UGMA) or a Uniform Transfer to Minors Act (UTMA) are other possibilities.

What age is too late for 529? ›

Parents who open a 529 plan when their child is a high school freshman or later can still take advantage of the federal (and sometimes state) tax benefits, even if college is just a few years away. Any college savings will reduce the child's future student loan debt.

As of January 1, 2024, owners of 529 plan accounts can make tax and penalty-free rollovers to Roth IRA retirement plan accounts, subject to certain limitations. This has been welcome news to many families who worried about having unused or leftover funds in a 529 plan account.

A rollover can only be made to the Roth IRA of the 529 beneficiary—not the owner of the 529 account (if different). The 529 account must have been in existence for a minimum of 15 years before rolling funds to a Roth IRA.

529 plans are excellent for some but are not optimal for every family. If you're unsure if your child will attend college, how much you may need or prefer a more hands-on approach with your investments, a 529 plan may not be the best choice.

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.

Earmarking your money for something specific, like education, can help motivate you to keep saving. But the tax advantages are the main reason 529 plans stand out from regular savings accounts. On top of tax-free growth, some states allow taxpayers to deduct or get a credit for 529 plan contributions on their taxes.

Ideally, the best time to start a college fund is when your child is born. With compound interest and regular investments made monthly or yearly, the funds have an opportunity to grow over a longer period of time, and you don't need to put aside as much each month or year to reach your savings goal.

Any contributions above the $18,000 (or $36,000 if you're married) per year per recipient must get reported to the IRS and will count toward your lifetime gift tax exemption of $13.61 million (or $27.22 million for married couples) in 2024. Go above that total amount in gifts, and you'll be subject to a gift tax.

While tax-advantaged 529 savings and prepaid tuition plans have their risks, they're hard to beat as a way to save for a child's education. Remember that both plans use time as their primary lever of advantage, so start as soon as possible for the best results. U.S. Securities and Exchange Commission.

And when you pull the funds out, as long as they're used for qualified higher education expenses, there's no federal income tax on the distribution and often no state income tax. 529 accounts also receive some favorable treatment for financial aid purposes, so they're really a great way to save for college education.