Nearly 75% of Americans are missing out on an easy way to save for college — here’s what every parent should know

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College is expensive – that’s obvious.

What’s not obvious is how to cover these costs. According to a recent survey from financial services firm Edward Jones, 72% of Americans aren’t aware of the 529 college savings plan, a state-sponsored, tax-advantaged investment account that anyone can use to cover tuition, fees, books, and supplies.

Even if you’ve heard the words “529 plan,” there are a ton of advantages they provide that you may not know about. Read on to learn how to make the most of a 529:


529s aren’t just for traditional college – or limited to tuition

“One of the best things about a 529 is that it’s so flexible,” says Michael Egan, CFP and founding partner of financial planning firm Egan, Berger & Weiner. “You can use it for undergraduate or grad school, or even for technical school or trade school, to pay for tuition, fees, and books.”


Anyone can open and contribute

A parent, grandparent, godparent, particularly generous neighbor, or anyone else can open a 529. Likewise, anyone can contribute to one and take the appropriate tax deduction.


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Another family member can use the money

While the adult who opens the plan is the plan’s owner, the beneficiary is the person who receives the money – and it can be changed.

If one child decides not to go to school, goes to a cheaper school than expected, gets a full scholarship (more on that in a minute), or for some other reason doesn’t use all of the money, you can simply change the beneficiary on the account and give those funds to another child … or even to yourself, if you’d like to go back to school.


You can save for more than 18 years

The typical adult graduates from high school at age 18, meaning if you open a 529 when your kid is born, your investments only have 18 years to compound and grow.

“However, you can use beneficiary changes to increase the time your investments have to grow,” explains Adam Nash, CEO of online investing platform Wealthfront, which offers its own 529 plan. “As a simple example, if you and your spouse are expecting a new addition to the family, you don’t need to wait until they arrive to open a 529 plan. You can open an account immediately, set the beneficiary to another qualifying family member, and start saving. Once your child is born and you have their social security number, you can switch the beneficiary to your child.”


If your kid gets a full ride, you can have the money back

If you saved more than you needed in your 529 and try to pull that money out to use for costs other than education, you’ll pay a fee. However, there’s one major exception: “If you’re not using the money because the kid gets a full scholarship, the penalty is waived,” Egan tells Business Insider. “It’s a federal rule, so it applies to all plans.”


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You can choose which 529 you want to use

Since the plans are state-sponsored, each state runs one or more of their own, and savers are allowed to choose which they prefer. At savingforcollege.com, there are 114 options, and each one has a slightly different investment structure – the site lets you compare investment options, fees, and various tax benefits of each plan.

Note that, “If you don’t use your own state’s plan, and you live in a state with income taxes, you may miss out on a tax deduction,” Egan warns. “There would have to be a really compelling reason to go outside your own state, like if the other plan had significantly lower expenses and, in net of the tax deduction, you’d still save money.”

You’ll want to pay close attention to the fees associated with the different plans. As Nash explains, “Unfortunately, like 401(k) plans, the average 529 plan can come with high fees, so it’s important to choose one, like the Vanguard 529 College Savings Plan in Nevada, that features low cost index funds.”


You can have more than one account

That said, the fact that you can open more than one 529 means that if you have an open account and move out of the state, you can keep your money in your original 529 and open a new one in your new state. While you can choose to consolidate them, Egan mentions that some states will request the money from your tax deduction back if you withdraw the funds – in which case you might as well leave it.

In fact, any family with more than one kid bound for higher education should have an account per child. “For the average person, it’s easier to think of an account per child instead of one collective pot to be divvied up,” explains Egan. “Then you know that Suzy has her own savings, but you could take money for Suzy out of Johnny’s pot if you needed to. It also gives the ability to get more deductions – three plans for three kids allows three times the deduction.”


You can store a lot of money

While the most generous among us have to look out for incurring a gift tax, which is a tax designed to discourage sheltering income in “gifts,” you can contribute up to $14,000 per year, per child, and per donor. “A husband and wife could put in $28,000 a year, per child, without the gift tax being an issue,” says Egan. And in states like Virginia, he adds, there is no cap on the tax deduction you can take if you’re age 70 or older.


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You can front-load the account

If you need it, there is a way around the donation limit: You can give up to five years’ worth of contributions at once – that’s $70,000 per person. “In year one of the plan, you might see a grandparent who has done really well for themselves and won’t need the money make this kind of contribution,” Egan explains. “It means they won’t be able to contribute for the next five years, but by putting the money in early, they’re giving it more time to compound, and they’re getting it out of their estates.”


A 529 can last for generations

There is no expiration date on a 529. “If you front-load your grandchild’s 529 twice, odds are they may not spend $140,000 when they go to college,” says Egan. “That money could stay in the account and go to their kids. You could keep it as a multi-generational family trust.”


The bottom line

Whether or not you choose to use a 529 – although for almost everyone, it’s the best choice – get started as soon as possible. You’ll also want to manage your child’s expectations. Egan recommends having discussions well before college about how much money you’ll be providing and how much your child is expected to chip in.

“The biggest mistake I see is parents who try and pay 100% of a child’s college costs and screw up their own retirement because of it,” says Egan. “They run out of money before they run out of life and have to live with their kids for 15 years.”