Providing your child with a quality education is very important for their future as a professional. However, enrolling them in a school and buying supplies like books can be expensive, especially since you will have to pay yearly for them to continue studying.
If you are a USAA (United Services Automobile Association) client, then you are in luck because you can open a 529 Education Savings Plan to help you.
This plan is more than just a savings account; it is a way to invest money with the chance of growing your income. There are two ways to start investing money, and you can do it anytime by giving a small contribution.
Investing can sound scary at first, but USAA ensures you do not lose a penny. Furthermore, opening a 529 plan will save you from troubles regarding your son’s education or yourself. So if you are interested, there are some things that you need to know before you create this savings account.
Benefits of opening a USAA 529 Savings Plan
The first crucial thing is that investment returns are not subject to federal income taxes. The same goes for expenses; if you buy with money from your savings account, it will not be subject to federal income taxes.
However, it only works for education-related expenses. In other words, if you use your account to buy food, clothes, transportation, health insurance, etc., then taxes will apply.
Some expenses qualify for your 529 plan depending on the type of education, for example:
- K-12 tuition. From kindergarten to 12th grade, the USAA 529 plan will cover up to $10,000 for your education-related bills.
- College undergrad and graduate. First, you must confirm that your college participates in the federal student aid program to know if your plan can cover it. Supplies, rooms, equipment dedicated to your career, and services for special needs students are covered.
- Vocational schools and continuing education. Mostly what is covered are your tuition, books and supplies, and necessary equipment.
- Apprenticeships and others. On-the-job training and courses apply for coverage, as well as required equipment and repayment of student loans.
Other types apply for the USAA 529 savings account, so you have to ask your institution if they cooperate with the plan.
There are annual contribution limits that vary depending on the state you are in, but there is no limit for any income-based contribution. So you can start earning income quickly, especially since it is an open account, and anyone can put some money to save for your kid’s future.
Moreover, you do not have to relegate the account to your child. An adult can be the student, and you can save for yourself. You will have all the control over the savings account’s money and expenses, so you should open one if you decide to study at an institute.
How to open and set a savings plan
To open a 529 plan with USAA, you must fulfill an initial investment. You can either give a contribution of $50 each month or pay the minimum investment of $250. After that, you will need to choose how you want to proceed with your investment plan.
Currently, there are two which you can pick from, and both work greatly depending on your situation:
This plan is excellent for new people in the world of investment. It is a low-maintenance option based on the beneficiary’s age. Nine portfolios show an aggressive or conservative approach. For example, raising money for college is considered the latter.
Whether you want to conserve your cash or raise your equities is your decision. It will likely take a year or two to see the results if you choose an aggressive portfolio.
Fixed allocation plans
This option is for you if you prefer to pick and manage your portfolio by yourself. You will choose from various portfolios based on the investment mix you want and wait for the results to arrive. It is more active than the former option, but if you know how to invest, this is your choice.
Still, some USAA advisors can help you if you do not understand the process, so be sure to contact them.
How much should I contribute?
Essentially, you need to know how much you will spend for tuition and supplies for your kid, and pay that amount, no more and no less. It is recommended that you contribute the same money you need. As we already said, there are contribution limits that vary depending on the state you are in.
Either way, you must know that if you contribute more than $16,000, it will be subject to the gift tax. This applies to every contribution per donor, meaning that for a married couple, both can contribute $32,000 in total without worrying about gift tax.
For people who have more money to contribute but want to avoid this tax problem: you can make a single deposit of $160,000 which can count as a payment for the next five years. In other words, this is the sum of 5 payments equal to $32,000 denominated as separate gifts. That way, your contribution is not subject to gift tax, and in the 6th year, you repeat the process.
The necessity of opening a USAA 529 Education Savings Plan
These savings plans will assure that you, your children, or whoever is going to study will receive an adequate education without worrying about tuition expenses. Opening a savings account will also increase the money you invested.
Sure, investing comes with risks, so if you are not an expert in this area, we recommend you seek an advisor and choose the aged-based plan. USAA representatives are ready to help you resolve your problems and organize your portfolios for the future.