How do I choose the best 529 plan for my grandchild?

Q. My son is going to have a baby. I want to create a university fund and I think a 529 plan is the best way. How can I choose the best?

– Grand parent

A. Congratulations! Your future grandchild is lucky to have you as a grandparent.

The average cost of four years in a state public college today is $ 90,760. For a private school, it’s $ 206,760.

If you look 18 years into the future and consider inflation, the cost climbs to $ 218,425 for the public and $ 497,593 for the private, assuming a 5% growth rate in tuition and prices. rooms and meals, said Jeanne Kane, Certified Financial Planner at JFL Total Wealth. Management in Boonton.

She said it’s cheaper to fund college with savings that with the loans, and she called 529 packages excellent tax-efficient savings vehicles.

“The investment grows tax-deferred and the growth is tax-exempt if the funds are used to pay for” qualifying education expenses “such as tuition, fees, books, supplies and room costs and pension, ”Kane said.

529s are donated by Each state but you are not limited to investing in your state’s plan. You can invest in one of them, she said.

As a grandparent, there are a few things to consider.

As the owner of the plan, you remain in control and choose a beneficiary of the 529, she said.

“If the grandchild doesn’t want to go to college or if your grandchild gets a scholarship, you can change the beneficiary to another family member,” Kane said. “If you ever need money in the future, you can distribute it, but you will have to pay a 10% penalty and pay growth taxes.”

You also don’t have to own the account, she said. Instead, you can bring one that your son can own, she said.

In the past, student funding from a 529 owned a grandparent could affect a student’s eligibility for needs-based financial assistance. This is because this cash assistance counted as student income, she said.

Changes to the Free Federal Student Aid Application (FASFA), a form that all students fill out and that determines the amount, if any, financial aid they receive, will eliminate issues related to cash support for the 2024-2025 school year, Kane said.

Since you can create an account with any state plan, the choice is yours.

Kane said you should look for a plan with a low fee, noting that large financial institutions known to offer low cost investments such as Fidelity, Charles Schwab, or Vanguard all operate 529 plans.

“The lower the fees, the higher the net return if you compare similar investments, especially if the options are invested in index funds,” she said. “Look for a plan that offers the investment options that will meet your goals and level of involvement. “

529 plans offer so-called age-based investment options, which can be great if you don’t want to have to regularly monitor investments.

“These funds automatically rebalance and become more conservative over time,” she said. “A newborn will be more aggressively invested than a 17 year old.

These are similar to target date funds offered in 401 (k) plans.

If you prefer to be more involved in investment decisions, you should choose a plan that offers a variety of aggressive, moderate, and conservative fund options available to you, she said.

“As with any investment, you’ll want to compare the return on long-term investments between the different plans you’re considering,” she said.

Some states also give you an income tax deduction if you invest in their 529 plan while there are a handful that will give you a deduction for investing in any state’s plan.

“Unfortunately, New Jersey is not one of them,” Kane said.

The New Jersey plan, NJBest, offers a tax-free scholarship for New Jersey students attending school in the state, with a maximum of $ 1,500. But you don’t know where your grandchild will go to school yet, so that probably shouldn’t be too much of your decision-making.

Email your questions to [email protected].

Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for‘s weekly electronic newsletter.

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