For families with any amount of income, a 529 plan makes a lot of sense as a way to save up for their child’s education; these accounts can provide significant, tax-free returns as a child grows, contributing greatly to a family’s ability to cover things like tuition and housing during college. But what if it’s you, not your child, who wants to head back to school? If you’ve heard about the advantages of 529 plans, you might be wondering, “Can I open a 529 plan for myself?” To find out, read on as the experts at Sootchy shed some light on this topic.
Can You Open a 529 Plan in Your Own Name?
Whether you’re looking to fund your educational pursuits now or in the future, 529 plans may seem like attractive options, given all the tax benefits they come with; luckily, any person has the ability to open a 529 plan for themselves at any point. In fact, the process of starting one of these plans in your own name is more or less the same as that of a parent opening one for their child, with one notable exception (an investment-related concern that we’ll cover below).
Although the details of 529 plans can vary pretty widely from state to state, there are no age limits for beneficiaries of these plans, and many don’t require funds to be in an account for a significant amount of time. If you’re looking to pay for college sooner rather than later, you may be able to start a plan in your state and use the funds in little time while reaping state income tax benefits, a financially beneficial arrangement for adults looking to retrain for a different job. If you’re not planning to head off to school for a while, these plans can provide tax-free earnings that compound year after year, and there’s no time limit determining when they need to be used.
For those concerned about how or when they might use the funds in their 529 plan, know that you can change the beneficiary of your account without incurring any penalty or tax on earnings, so long as the new beneficiary is a family member. This arrangement is ideal for adults whose children have not yet been born, as you can simply open a 529 plan for yourself, then make your child the beneficiary after they’re born.
How to Open a 529 Plan for Yourself
As mentioned above, opening a 529 plan for yourself is not much different from opening an account for a child or family member. The first – and arguable most important – step is to find the plan that’s right for you, which can be easier said than done. Each state offers one or more plans, and prospective plan owners can pick just about any one of them. It should be noted here that certain states incentivize the use of their plans by offering state income tax deductions or credits, but it’s important to consider the performance and fees of other plans as well; a 529 plan that provides substantial, consistent returns but offers no state tax benefit may be more advantageous than a poor-performing plan with a tax deduction. Still, it’s a good idea to check what your state has to offer before committing to a plan.
Once you’ve picked out a plan, you’ll need to apply, naming yourself as both owner and beneficiary; there should be no issue with this. After applying, however, you’ll have to fund the account – most require little to no money toward initial contributions – and pick an investment portfolio. This is where the process diverges a bit from that of a parent opening a plan for their child.
Most 529 plans allow account owners to choose from a number of investment options, some of which allocate funds to certain investments automatically, and some of which are managed manually by the owner of the account. The most popular of the automated investment options – and probably the most popular option in general – is an age-based portfolio, which is designed for parents of young or newborn children who have 18 years to save up for college. These accounts tend to start risky and get more conservative with time, but if you’re opening an account for yourself with the intent of using those funds in the near future, this portfolio may not work for you.
Instead, consider a static portfolio tailored to the amount of risk you want to take on. Those intending to enroll in a school in the next year or two will probably want to refrain from taking on any dicey investments, as they could risk losing money with little time to gain it back, but a long-term plan (at least five years out, say) may benefit from the increased returns made possible by a riskier portfolio. Ultimately, the kind of 529 plan you want to open for yourself will depend on your personal, professional, and financial goals; just be aware of your options going into the process and plan your account accordingly.
Download the Sootchy App and Open a 529 Plan for Yourself Today
Opening your own 529 plan may seem like a daunting task, but with help from the experts at Sootchy, it’s easier than ever to take advantage of this useful financial tool. Whether you’re looking to start a 529 plan for yourself or a family member, we can guide you through the process and ensure you’re well on your way toward funding your future. Learn more by visiting Sootchy online or download our app to get started today.