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.

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.

“If you know your education costs will exceed your 529 savings, I would recommend spending the 529 balance first before borrowing any money,” she says. However, this is not advisable if you think you might have trouble getting a loan later on.

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.

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.

With the new regulations, 529 plan account owners or beneficiaries can roll over 529 funds into a beneficiary-owned Roth IRA tax-free and penalty-free as of January 1, 2024, subject to the limitations described below. If you qualify, this can be a great way to help kick start a beneficiary's retirement savings.

Starting in 2024, beneficiaries of 529 college savings accounts are permitted to do a tax-free rollover to a Roth IRA.

529 Plans and Scholarships

If your child does not receive a scholarship (or meet the requirements for one of the other exceptions) and you withdraw funds that you don't use for qualified education expenses, you will owe both taxes and a 10% penalty on the earnings.

The 5-Year Election

Individuals may contribute as much as $90,000 to a 529 plan in 2024 ($85,000 in 2023) if they treat the contribution as if it were spread over a five-year period. The 5-year election must be reported on Form 709 for each of the five years.

Which state has best 529 plan? ›

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.

In most states, that means age 18, though in some states the age threshold may be higher. The custodian can't change the beneficiary or account owner. Once the account owner/beneficiary becomes an adult, they assume control over the 529 plan.

In most cases, your 529 plan will have a minimal effect on the amount of aid you receive and will end up helping you more than hurting you. You can also take several steps to increase your child's eligibility for student financial aid.

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

Our original goal was to create a 529 plan worth at least $500,000 after 18 years. Given college tuition has been compounding at a rate of ~5% a year for decades, a $50,000 annual tuition today will grow to $120,000 in 18 years.

The Medium column assumes a $15,000 annual contribution every year until 18 with a 6.2% compound annual return. The goal is to have saved $500,000 per child by the time he or she begins college. After age 18, $100,000 a year is to pay for college until the 529 plan goes to 0 at age 25.