With the start of the New Year came the end to my maternity leave. For those of you keeping track, my husband and I welcomed our baby girl, Elizabeth, at the beginning of October. As part of my maternity leave, I took three months off work so that I could have some undivided attention with our little blessing. That’s not to say I stayed away from the office that whole time…
Shortly after Elizabeth received her Social Security Number, we set-up a college savings 529 plan for her benefit. I’ve discussed the benefits of 529sand their tax advantages in previous posts and knew early on that we’d be setting one up for her benefit.
To mark the occasion, I thought it would be fun to take her into the office, introduce her to my co-workers and show her where mommy works while she’s at daycare.
For those of you with young children trying to decide if a 529 is right for your situation, I wanted to share what compelled us to establish a 529 account for our little girl.
I mentioned earlier that the 529 account was for her benefit instead of in her name. If you caught that, you get a gold star! With 529 accounts, the parent or grandparent is actually the account holder, not the child. One of the more appealing aspects of a 529, if you ask me! As the parent and owner of the account, I will ultimately have control when and in what amounts the funds are used from the 529 when Elizabeth goes off to school. If I just opened a custodial investment account in her name, Elizabeth would have full discretion over how those funds are spent once she turns 21. I want to be certain the money we put aside in this account is being used for college related expenses.
The second reason we decided on a 529 for Elizabeth is because we wanted an account that could grow overtime. We have 18 years (give or take) until we send her off to college and the tuition bills start piling up. To get in front of this major expense, we though it was prudent to put money earmarked for college in an account that can be invested and participate in future market growth.
The tax advantage features of a 529 is the true cherry on top. Money invested within a 529 will grow tax-deferred. This is unlike money invested in a custodial taxable account. In addition to the tax-deferred growth, account distributions are eligible for tax free treatment if used for qualified education expenses. And for certain states, Illinois being one of them, you can secure an income tax deduction for contributions up to $10,000 per tax filer.
I’m going to pause there and encourage you to reflect on that, in some instances there are one, two, three tax advantages to using a 529. Even without the additional tax incentives offered to Illinois residents when using the Illinois state sponsored plan, we would have still opened the account for the control and growth features discussed above.
It was so fun brining her into the office to drop off the 529 application and initial funding. I was able to show her my office and introduce her to my team members. Thankfully she kept her cool during the visit which made everything more enjoyable! I can’t wait to tell her the story of our first trip into the office to set-up her college savings account.
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