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College and Saving

If you are planning on sending your kids to college, then you need to be thinking about the financial costs. The apple of your eye is heading out into the world and studying to become whatever it is they have decided they are going to pursue. And while you are proud as punch, you are going to need to pay for tuition, books, accommodations and food for starters. How on earth can you be prepared when the day arrives and have to access the funds required?

A simple savings account won’t cut it at all. Luckily, there is a way to invest in your children and their future and get a tax break at the same time. If you have a 529 plan, then in addition to any federal savings you may have, you may be able to get a full or partial tax deduction or credit from over 30 states where they allow it.

Not everyone has heard of a 529 plan. Named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996, a 529 plan is like an IRA for college savings. It is an education savings plan that is operated by a state or educational institution, and it is designed to help set aside money that can be used in the future for college costs.

There are two types which you can use:

Self-directed college savings plans are where you invest money that can later be accessed and applied at any accredited college. If you withdraw earlier than the specified time or you use the money for something other than education, you are liable for penalties or taxes.

Prepaid tuition plans are the other type of 529. These are where you pay up front over time for your children’s education. It is essentially paying up their fees ahead of time by paying monthly while they are young so that when they get to college age, you have already been paying the school for years and building an account there. Of course, this is only beneficial if you know where your child is going to go to college way ahead of time.

Making sure your children’s college is taken care of is a luxury that many more people could afford if they just knew how to save and be smart with it.

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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