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How Much Money Do You Need to Start a 529 Plan?

November 29, 2020
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Sootchy Team

Many people ask us "how much do you need to start a 529 plan?" The answer varies based on your location. Learn more from our college savings experts.

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When investing in your child’s future, it’s important to pick savings options that fit your financial goals, and for many families, the perfect solution is a 529 plan. The tax benefits of this plan are considerable, and the potential for returns on a 529 investment plan can make college a more affordable option for families across the socioeconomic spectrum. To take full advantage of the opportunities presented by 529 accounts, it’s important to know the differences between each state’s plans and what it takes to open a plan yourself. One common question parents ask is, “How much do you need to start a 529 plan?” To find out, keep reading as the 529 experts over at Sootchy provide the answers you’re looking for.

Comparing Minimum Contributions When Starting a 529 Plan

There are a lot of features that differentiate one 529 plan from another – not only how much money you need to start a plan, but also how much you can expect to get out of it, what kinds of fees to expect, and whether you can get any additional tax benefits from your state when investing in a 529 account. Here, we’ll focus on the minimum contribution requirements of different accounts and how they can factor into a decision regarding what plan is right for you.

Requirements by State

The first thing to know when asking how much money you’ll need to start a 529 plan is that each state offers its own versions of 529 plans, and many states have several options. Families looking to start one of these accounts are not limited by geography; a parent who resides in New York can enroll in a 529 plan in Alaska, if The Last Frontier’s college savings option is more to your liking. This lets parents shop around for a plan, but it also means that there’s no one set amount of money that’s necessary to open a 529 plan.

Even within a single state, minimum contribution requirements vary. Take Alaska, for example; the state offers three different 529 plans – Alaska 529, the T. Rowe Price College Savings Plan, and John Hancock Freedom 529 – which are arranged here in ascending order with regards to how much money you need to start a plan. The first, Alaska 529, has no minimum, while the T. Rowe Price plan requires $50 to get started. To enroll in the John Hancock Freedom 529 plan, however, you need at least $250 on hand.

If these differences seem significant, wait until you see the kind of variation that exists from one state to another. Someone opening a 529 account in California, for instance, needs only $1 to get started, while someone enrolling in South Dakota’s plan will need at least $1,000 on hand, and Nevada offers a 529 plan that requires $3,000 – a significant sum by any measure. Ultimately, the question of how much money you want to spend to start a 529 plan is one that should guide your search, but the answer is really up to each family to decide.

College Savings Plans vs. Prepaid Tuition Plans

Another factor to keep in mind here is that the amount of money you’ll need to start your 529 plan will vary based on the type of plan. Many college savings plans – the flexible, pay-what-you-want kind – have no minimum requirement for payments, whereas someone with a prepaid tuition plan will have to sign a contract agreeing to contribute a certain amount, either in the form of an initial lump sum or through payments made over time. If you want to retain control over what you pay, both when starting the plan and later on, you may want to consider college savings plans first.

How Much Money Should You Put in Your 529 Plan?

Of course, just because a state doesn’t have a minimum contribution doesn’t mean that you have to start small. Most families start 529 plans with relatively little money, but putting more into your plan up front could pay off down the road. Remember that the goal of a 529 plan is for it to have enough money to pay for – or at least cover a significant portion of – your child’s college education costs, which means that you want to have as large a balance as possible when freshman year rolls around.

Equally important to keep in mind is the fact that the returns on a 529 plan take years to accumulate, especially if you’ve chosen a conservative investment portfolio. In addition, these returns are compounding, so the more you put in at once, the faster it will grow. All of these factors boil down to the fact that depositing a fair amount of money in your 529 plan when you start it could mean far greater returns in the long run, which only benefits your child.

That said, some savings are better than no savings, just as some returns are better than none. If all you can afford when you open your 529 plan is an initial contribution of $50 or $100, that’s fine; you can plan to build your account over time, contributing as much as you can afford. Many families start their 529 plan with small deposits at first, and every dollar added is less debt down the road.

Get Support When Starting a 529 Plan from the Experts at Sootchy

Whether you’re looking to launch into a 529 college savings account with a big initial deposit or want to ease into your new financial obligation with small contributions, the team at Sootchy can help you find the plan that’s right for you. Learn more about how we can help by visiting us online or download our app today.

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