The cost of education has been rising steadily for decades, and there’s no sign that this trend will subside. With higher education becoming more and more expensive, parents need to start preparing for the expenses of their children’s tomorrow, and there’s no better time to start investing for higher education needs than right now.
If you don’t plan ahead, it’s likely that you'll be part of the majority of American families who do not have a college savings plan in place. According to a Sallie Mae study, only 39% percent of families have a plan to pay for college tuition. That means that the remaining 61% of families are left having to take out loans to cover the costs.
On average, families pay for college through a combination of resources. Savings, grants, scholarships, student loans, or personal loans. A 529 College Savings plan is probably the most intelligent thing you could do in anticipation of the coming expenditure for tuition and other costs that go along with a college education.
Something to keep in mind is that you can view your savings as an investment in your child’s future. The New York Times released a study that showed Americans with four-year college degrees earned 98% more per hour than workers without degrees.
In order to be ready when that day comes, it would be wise to start preparing today. Here are some things to know about 529 plans as you look over your options:
High contribution limits, no income restrictions
Plan contributions can be made up to a maximum balance which differs by state and/or plans – for all program accounts per beneficiary. Plus, there are no income restrictions on the account owner.
They’re not just for college
While funds from 529 plans can be used for qualified higher education expenses, including tuition, fees, room and board, books, computers, and other required materials, they can now also be used for similar expenses associated with public, private, or religious primary and secondary education.
Anyone can contribute
Any U.S. citizen – including relatives and friends – can contribute to a 529 plan for a selected beneficiary. Some grandparents might consider 529 plan contributions as birthday gifts.
When you open a 529 plan, you are the “owner” of the account for the benefit of your selected beneficiary, such as your child, or other family members. Should the designated beneficiary not need financial assistance for college, it can be transferred to another.
Estate planning advantages
Especially important for grandparents or other relatives, contributions to a 529 plan account are excluded from the donor’s taxable estate for federal tax purposes (assuming the donor is not the beneficiary).
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