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Getting Past Contribution Limits For 529
College Savings Plans
There are a few major investments that almost every family
faces – cars, homes, and of course, college educations for the
children. The importance of having a college degree seems to
grow every day, but unfortunately, the cost of attending
college seems to grow right along with it. In fact, the cost of
attending college is downright prohibitive for some families,
and there is no reason to think that this situation will
improve any time soon, and every reason to think it will
actually get worse. What can you do if money is tight, but you
want your child to have access to an education that will help
them succeed in the job market?
Scholarships and grants help some families, but they seldom
foot the entire bill, and student loans can be an expensive
burden to saddle onto your child on graduation day. Another
problem with all of these college funding options as well is
that it is impossible for you to know if you are getting them
until your child is actually ready to enter college. You can’t
wait that long to plan for education financing if you want your
child to be able to attend the college of their choice. So,
what is a hard working family to do to ensure that they will
have the money to put their kids through school? A 529 savings
plan can be a great option.
A 529 savings plan is a state run savings account that lets you
save money for your child’s education and gives you a tax break
for doing so. Anyone can contribute to your 529 savings plan,
so if grandparents and the extended family want to help save,
they can do so. Some 529 savings plans function just like
normal saving accounts, while others pre-paid accounts for
schools that let you pay the tuition of a college in advance.
The idea is that the price you pay today will be significantly
cheaper than the price you would pay by the time your child is
old enough to attend that school (of course, then you have to
hope they want to go there!). These savings accounts allow you
to grow your money faster by investing it in the stock and bond
market as well.
There is a drawback to these 529 college savings plans,
however, and that is the contribution limit. Each state comes
up with its own contribution limit, but they generally range
from $100,000 to $200,000 per family. That may sound like a lot
of money, but is it really? Would it be enough if your child
wanted to attend an Ivy League or private university? Would it
be enough to give several children room, board, books, and
tuition at even a public state school? If you are facing either
of these scenarios, you need to find a way around the
contribution limit on these accounts. There are a few things
you can do. You can have relatives set up separate accounts
instead of contributing to your account, and you can have
accounts in multiple states. You can put your money into
different types of accounts – one pre-paid and one savings –
for your children. You can also have each parent start an
account, if they are unmarried.
The most important thing to remember about starting all of
these accounts and getting around the contribution limit is
that you will need to understand the tax implications for each
account. If you have accounts in different states, each state’s
own tax laws will apply to each account. Each account holder
will be responsible for reporting contributions to their own
account. All of this extra work may be worth it in the long
run, though, so your child does not have to worry about
finances will working on their degree.
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