Considering a 529 plan? Here’s exactly how to create one.

Hello,

I am interested in the College Choice 529 plan for my son and wanted to know can you walk me through the process and forms if possible.

Thanks,

Nikki

Hi Nikki,

Congratulations on taking the first step towards preparing for your son’s future education needs! A 529 is a great way to save money on a tax-deferred basis that can then be used tax-free for qualifying educational expenses (tuition, room and board, books, technology, etc…). Each state sponsors their own 529 plan and some even offer tax incentives to encourage savings. This doesn’t mean you couldn’t participate in a 529 sponsored by another state, you just wouldn’t be eligible for the tax incentives offered by your home state. Finally, funds contributed to 529 plans can be used at any college in the country (and some abroad) plus many vocational/trade schools. 529 plans are very effective tools for educational savings.

Based on some information you provided us in your email, I’m going to assume that you live in Indiana. Therefore, I’ll be referencing Indiana materials in this reply. Should a reader outside of Indiana be interested in opening a 529 in their own state, however, the process will be very similar.

The first decision you’ll need to make is do you want to do this yourself or have a financial advisor help you? If you choose to open the account yourself, you’ll be in charge of the paperwork, all contributions/distributions, and investment selection (don’t be overwhelmed by this; it’s not as scary as it may sound). If you’re not comfortable managing the account and would like some help, consult a financial advisor to get squared away. I must note that if you engage the help of an advisor, you will pay them commissions with every invested contribution you make into the account, thereby reducing the amount of money you’ll have working towards your savings goal. It’s not necessarily a deal breaker, but it’s important you know that.

Going forward, I have to assume that you’ve decided to do this yourself. The easiest way to open an account is to visit www.collegechoicedirect.com and click on the “Enroll Now” button in the middle of the page. You’ll then be asked some very basic information about yourself (assuming you want to be the account owner) before you continue. Beyond this point in the process, you’ll need to be prepared to:

  • Provide information about the beneficiary (your son). You’ll need to have his Social Security number close by for this part.
  • Decide what type of account you want to open. You will have three options; individual, UGMA/UTMA, or business entity/trust. Unless you’ve been instructed to use one of the last two, an individual account is the most likely choice here.
  • Choose a successor owner. Should something happen to you, who would you like to have control of the account?
  • Investment options. You’ll have the opportunity to pick the investments you’d like to use, or, you can opt to use a “Year of Enrollment Portfolio”. A Year of Enrollment Portfolio (YEP) is a pretty slick product. Basically, you figure out roughly when your son will enroll in college. For our purposes, let’s say that year is 2032. You’ll check the portfolio options and see that the closest year they offer is 2033 and choose that one. These portfolios work by investing your contributions into a handful of funds and adjust the allocation based on the amount of time remaining until you’ll begin using the money. So, the farther away the start of college is for your son, the more aggressive the YEP is. As college draws closer, the YEP adjusts the allocation of investments, making itself more conservative (taking less risk) in order to try and prevent any major reductions in value right before you need the money. Slick, right?

  • Contributions. You’ll need to put some money in the account (both now and later). You can choose to either send in checks when you want to, or you could set up automatic transfers from your bank account to the 529 that happen on a regularly scheduled basis.

Finally, there are a few other sections that you can complete, but they’re optional and can be addressed later if you so choose.

If you’re the type of person who would rather just work with a pen and paper, here is a link to the Indiana 529 Enrollment form. You’ll notice it is pretty straightforward and you shouldn’t see any surprises. However, if you do have a question while you’re completing the form, call 866-485-9415 between 8a-8p and they’ll give you a hand. In fact, I’ve had to call in twice with random questions for my kids’ accounts and the people I’ve spoken to have been very helpful and courteous. I can’t recommend them enough.

Again, nice work taking steps to be prepared for the future. Keep up the good work and start funding that 529!

Leave a Reply

Your email address will not be published.