Tips for families on how to save for college using the 529 plan

With education always top on the minds for many parents, they wonder how they are going to pay for college.

There's a little-known savings plan that can help in a big way: it's called a "529 plan," and it's specifically for education.

It is named for section 529 of the Internal Revenue Code that helped to create the plans almost 25 years ago.

The sad part is though that only a little over 12% of U.S. households are using it.

Patricia Roberts is the author of "Route 529," a parent's guide to saving for college, says the plans enable individuals and families to earmark money for higher education expenses.

What happens to these accounts is when money is deposited into them, they grow in value -- and those earnings aren't taxed.

If money is withdrawn and used for a wide range of higher education expenses, Roberts says the earnings are never taxed.

Less tax means more money for college.

Over 30 states, have special state tax incentives to encourage families to save for college.

New York offers a $10,000 annual state tax deduction for married couples filing jointly who contribute that amount to 529 college savings plan. It's half the amount for single filers.

Connecticut has the same exact provision, while Pennsylvania allows families to deduct $30,000 a year in contributions to 529 accounts per beneficiary.

New Jersey doesn't have a state tax deduction, but they have other special benefits for their residents.

529 myths

- They're not just for college (they can cover trade and technical school, community college, registered apprenticeships, professional studies, grad school, etc.)
- You don't need to be a parent to open the account (can be an aunt, uncle, grandparent, family friend -- don't even need to be related to set up an account for a future student)
- You don't need a lot of time or money to get started (most plans take under 15 minutes to open and you can open with $25 or even less in many cases) - the visual on small amounts adding up over time could be helpful

5 easy steps to get started
- Determine your why: What is your reason for saving for child's future?

- Learn about 529 plans
- Get started now: It's never too early and never too late
- Automate: Make it easier by taking it out of your paycheck if you need to
- Don't go it alone: Invite friends, families and employers to join you in the journey

ALSO READ: Critically acclaimed 'Immersive Van Gogh' opening in NYC this month
EMBED More News Videos

Immersive Van Gogh, an immersive art installation that has already toured in Toronto, Chicago and San Francisco, is set to officially open in New York City on June 10.



----------
*Follow us on YouTube
* More local news
* Send us a news tip
* Download the abc7NY app for breaking news alerts
Copyright © 2021 WABC-TV. All Rights Reserved.