Saving early matters | NY 529 Direct Plan (2024)

FAQs

How much is $100 a month in a 529 for 18 years? ›

This chart shows that a monthly contribution of $100 will compound more if you start saving earlier, giving the money more time to grow. If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.

At today's world, I would underfund your 529 … The higher ed landscape is going to change so much in the next 18 years as the student loan epic failure debacle unfolds,” Ramsey said. “They have been overcharging for too long, and it's come home to roost. And people are not going to college in record numbers …

And, since you've already paid income taxes on the money you contribute to a 529 plan, you are free to withdraw your original contributions at any time for any reason.

So, if your child opts out of college, you can name a younger sibling or even a niece or nephew or potentially another relative. And you can even name you or your spouse as the beneficiary if you're interested in furthering your education.

Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan. With an individual 529 plan, the owner is usually a parent or other adult who saves money on behalf of a chosen beneficiary, typically their child.

529s are funded with after-tax dollars, which means that over time the investments grow tax-free. These plans are attractive for wealthy families because they provide a way for a parent or grandparent to transfer much more money to a child than they would be able to without incurring gift taxes, Stokes says.

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

It's easy to see why Americans don't embrace 529 plans. They often have limited investment options, high fees, complicated rules and anxiety-producing investment risks. All that said, the plans may ultimately be worthwhile for most families, as long as parents choose carefully. Focusing on fees is crucial.

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.

Can I convert my 529 to a Roth IRA? ›

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.

It works like this: Starting in 2024, you can roll unused 529 assets—up to a lifetime limit of $35,000—into the account beneficiary's Roth IRA, without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income.

Then, at the end of December, the Department of Education revised the Free Application for Federal Student Aid (FAFSA), creating the so-called grandparent loophole. The grandparent loophole allows grandparents to use a 529 plan to fund a grandchild's education without affecting the student's financial aid eligibility.

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.

Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.