How to Save for College with a 529 Plan for Adopted Children

A 529 plan is a tax-advantaged savings account that can help you save for your child's education. Here's how you can use it if you are planning to adopt a child.

What is a 529 plan?

A 529 plan is a type of investment account that allows you to save money for your child's education and enjoy tax benefits. You can use the money in a 529 plan to pay for qualified education expenses, such as tuition, fees, books, supplies, and room and board at any eligible college, university, or vocational school in the U.S. or abroad. You can also use up to $10,000 per year per beneficiary to pay for tuition at any public, private, or religious elementary or secondary school.

Why should you consider a 529 plan if you are adopting a child?

A 529 plan can be a great way to save for your child's education, especially if you are adopting a child. Here are some of the benefits of using a 529 plan for adopted children:

• You can open a 529 plan before you finalize the adoption. If you know that you are going to adopt a child, you can start saving for their education as soon as possible. You can open a 529 plan under your own name and Social Security number and contribute to it regularly. You can then change the beneficiary to your adopted child once the adoption is finalized. This way, you can take advantage of the tax-free growth and compounding of your savings over time.

• You can avoid gift taxes and estate taxes. If you contribute to a 529 plan for your adopted child, you can avoid paying gift taxes and estate taxes on the money. You can contribute up to $18,000 (or $36,000 for a married couple filing jointly) per year per beneficiary without triggering the gift tax, or up to $90,000 (or $180,000 for married couples) in one year and treat it as five years' worth of contributions. You can also exclude the value of your 529 plan from your taxable estate, which can reduce your estate tax liability.

• You can choose any 529 plan that suits your needs. You are not limited to the 529 plan offered by your state of residence. You can shop around and compare different 529 plans based on their fees, investment options, performance, and customer service. You can also transfer your 529 plan to another state's plan once every 12 months without penalty, if you find a better option.

• You can take advantage of state tax benefits. Some states offer tax credits or deductions for 529 plan contributions, which can lower your state income tax bill. If your state offers such a benefit, you should consider opening a 529 plan that is unique to your state. For example, Charles Schwab's 529 Plan is sponsored by the state of Kansas, and Fidelity's 529 Plan is sponsored by New Hampshire. You can check the Saving for College website to see if your state offers any tax incentives for 529 plans.

How to open a 529 plan for your adopted child?

Opening a 529 plan for your adopted child is easy and convenient. You can follow these steps to get started:

• Choose a 529 plan that meets your goals and preferences. You can use online tools and resources, such as the College Savings Plan Network, to compare different 529 plans and find the best one for you.

• Fill out an online application and provide your personal and financial information. You will need to provide your name, address, Social Security number, date of birth, and bank account information. You will also need to choose an investment option and a contribution amount.

• Designate your adopted child as the beneficiary once the adoption is finalized. You will need to provide their name, Social Security number, date of birth, and relationship to you. You can change the beneficiary at any time, as long as they are a member of your family.

• Start saving and investing for your child's education. You can make one-time or recurring contributions to your 529 plan, either online or by mail. You can also invite family and friends to contribute to your 529 plan through gift cards or online platforms, such as Ugift or Gift of College.

Conclusion

A 529 plan is a smart and flexible way to save for your child's education, especially if you are adopting a child. You can open a 529 plan before you finalize the adoption and change the beneficiary later. You can also enjoy tax benefits, choose any 529 plan that suits your needs, and take advantage of state tax incentives. By starting early and saving regularly, you can help your adopted child achieve their academic dreams.