Stock investing for dummies – 4 Effective Strategies To Boost 529 Savings

Stock investing for dummies

stock-investing-for-dummies Opening a 529 for your child is a great way to not only help save for education costs, but to also reap the other types of benefits of that comes along with these accounts. The problem, though, is that coming up with the extra money can be difficult.

You first and foremost, you have to make sure important areas of your life are taken care of, like your debt load and retirement accounts. Once you have those well-planned out, it’s never a bad idea to go ahead and start planning for your children’s future as well. Remember, it’s not all or nothing here either. You can choose a path of financial balance.

Here are four effective strategies to boost 529 savings no matter what type of budget you’re working with.

1. Start As Big As You Can

We’re all working with different budgets and can contribute different amounts to our financial goals. That is perfectly fine. But if you’re in a situation where starting a 529 with a lump sum is possible, there are many benefits in doing so.

Frontloading a 529 gives the money more time to grow and can save you a lot in future contributions. Also, many states offer tax breaks on money put into 529 accounts during the tax year. While you don’t get a tax break for contributions on the federal level, all earnings will grow tax free and the money can be withdrawn tax free for eduction purposes.

Under the gift tax exclusion, single taxpayers can contribute as much as $14,000 per year in a 529 or make a $70,000 contribution to cover five years all at once. Married couples can contribute as much as $28,000 in one year ($14,000 per individual) or $140,000 as a lump sum to cover up to five years. (You’ll have to see your state’s plan for rules on lifetime contribution limits.)

Grandparents wanting to make lump sums can also follow these rules, potentially saving themselves a lot of money on their estate taxes. As morbid as that might sound, it can make a lot of financial sense for families with large estates.

2. Make Incremental Increases

One of the most effective strategies, no matter what financial goal you’re working toward, is making incremental increases.

Let’s say that you currently contribute $50 per month to a 529. Make a plan to up the contribution by 10% (or any other percentage you can manage) per year. Next year you’d contribute $55 per month, the year after would be $61 per month and so on.

These small amounts are manageable and really do make a difference. Don’t believe me? Here’s how it breaks down over 15 years:

Flat Contributions At $50

If you contribute $50 per month for 15 years, you’ll have $9,000 saved up.

10% Contribution Increases Each Year

Now, let’s say you follow an incremental increase plan. In year 15, you’ll be contributing $190 per month. Yes, that’s a lot, but if you’ve already been doing it over time, it won’t feel like much. And as a result? You’ll have saved $19,063.

3. Ask Relatives to “Gift” Into the 529

One of the quickest and most painless ways to grow your child’s 529 plan is to ask relatives to contribute instead of buying regular gifts.

If grandparents and any other relatives who normally buy your child gifts instead divert the money toward college savings you could end up with several hundred dollars extra per year. Those contributions can make a significant difference over the span of a decade or more.

Plans like California’s ScholarShare 529 Plan make it really easy for relatives to gift into the 529 by offering gift cards. You can download a gift certificate on their website so you don’t go to the party empty handed.

4. Put Your Tax Refund to Work

Instead of blowing your tax refund on material possessions that will quickly be forgotten, put it to good use. Dedicate a portion toward your retirement accounts, a portion toward a 529, and then another portion toward something else of your choosing.

Lump sums like tax refunds offer great opportunities to make a big dent in your financial goals. Even putting a few hundred dollars from your tax refund can make a big difference. Remember, it’s works to start small when saving for college.

Look Into Other Ways to Pay for College, Too

We all know that the cost of college is rising each year, and that our children will be paying a higher price than we did. That, however, does not mean that your savings are the only way to pay for college.

While it’s definitely smart to contribute as much as  you can to a 529 plan your child can also look into alternative funding methods like scholarships, financial aid and even student loans if need be.

What things have you done to boost 529 savings?

Robert Farrington is a brand ambassador for ScholarShare and this article was sponsored by ScholarShare. All opinions are my own and you really should be using some of these simple tricks to boost your 529 savings!

Photo Credit: belchonock / 123RF Stock Photo

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