By Patricia Andre-Edgar (Estimated reading time: 5 minutes)
Extending a Helping Hand
It’s hard work being a parent, and having other people such as family members to count on for support is critical to the well-being of a child and their caregiver. That help can take many forms; from holding the baby while a parent takes a shower, to bringing meals, to spending a few hours with your toddler while you take some time for yourself. Some families are fortunate to have relatives like grandparents, aunts, uncles, or family friends and neighbors who express a desire to give financial gifts for special occasions or to support long-term financial goals.
If this is the case in your family, you may wish to consider directing those gifts towards an education savings plan. While it may feel like decades into the future, planning now can help your child avoid debt and attend a college, trade school, or participate in an apprenticeship program.
Pick Your Plan
Through organizations like Washington 529 College Savings Plans (WA529), anyone — including family members — can open and/or contribute to an education savings plan for your child. There are two options to choose from: the Guaranteed Education Tuition (GET Program) and DreamAhead College Investment Plan.
The Guaranteed Education Tuition (GET Program) is a prepaid college tuition plan that helps families with young children save for higher education expenses. Prepaid plans allow participants to pre-purchase future tuition at a predetermined rate today. Typically, an account owner will purchase somewhere between one and four years of tuition for a young child, and when that child reaches college age, the plan pays out based on tuition rates at that time. Investment performance is often based upon tuition inflation. The money accumulated can be put towards tuition, room and board, books, and more. There is a lot of flexibility built into this plan, with the ability to transfer accounts to another family member, postpone the use by saving it for graduate school, or even receiving a refund.
The DreamAhead College Investment Plan is considered a traditional college savings plan. College savings plans are different than prepaid tuition plans in that your account earnings are based upon the investment performance, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based investment options where the underlying investments become more conservative as the beneficiary gets closer to college-age. DreamAhead plans can be used for the same qualified expenses as a GET account, and these plans offer the ability to select from various investment options that are based on market performance. It also offers risk-based investment options where the underlying investments remain in the same fund or combination of funds regardless of the age of the beneficiary. You can make changes to your investment options. The money earned in a DreamAhead plan is tax-free, with a higher earning potential.
Benefits are plenty when contributing and saving for an education tuition savings plan. The investment will grow tax-free, will qualify for gift tax exclusions, and the funds are transferable. Setting up regular deposits to a savings plan is straightforward, with options including payroll deduction, check or money orders, setting the payment up as a bill pay, or electronic payments through an automated clearing house.
The person who sets up an account for your child will be the owner of the account, having the ability to manage the account and make investment decisions (for DreamAhead accounts). For friends or family who wish to have less responsibility, they can opt to contribute funds towards an account opened by the child’s parent or another relative. Luckily, nothing is set in stone and changes such as ownership and beneficiaries can be modified after the account is opened.
Taking the First Step
Ready to get started and wondering what the first steps are?
- If your preference is to be the account owner, here are the fundamental steps to get you started:
- Select a plan.
- Have your name, address, and social security number ready.
- Determine the beneficiary’s name, address, social security number, and date of birth.
- Determine a designated survivor and have the name, address, and social security number of that person ready.
- Have the contact information of other individuals you wish to access the account.
- Have bank account information ready for the initial and ongoing contributions.
- If you’d like to contribute to a fund that’s already been opened by someone else, there are three steps:
- Have the account number ready.
- Determine your method of contributing.
- Determine the address where the payment will be sent to. Visit the WA529 Contact Us webpage for more information.
For those wanting to open a GET account, be sure to enroll between November 1 through to May 31 of each year. Enrollment in DreamAhead is open year-round.
Contributing to a GET account? Find tips, templates, and tax info for the GET Program.
Contributing to a DreamAhead account? Find tips, templates, and tax info for DreamAhead.
For those who are wanting to approach family members and friends to contribute to an education tuition savings plan, tips for you can be found here and here.
- Interested in learning more? There are several ways to ask questions and find more information:
- Visit the WA529 Give a Gift webpage for details and tips on both plans.
- Join an upcoming webinar or virtual Q&A session hosted by knowledgeable WA529 staff.
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