Benefits of a 529 College Savings Plan
Student loans are in high demand due to the rise in cost of college education.
According to USA Today, college tuition and fees have increased by a whopping 1,120% since 1978. But what if we told you planning ahead of time could ease the burden of your child’s student loans? A 529 college savings plan might be just the plan you’re looking for to fund your child’s education.
According to SEC.gov, a 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. States, state agencies, or educational institutions sponsor 529 plans, legally known as “qualified tuition plans.”
Here are some of the benefits:
- If you set up your 529 college savings plan in advance, you may be able to accrue a sizable amount to help pay for your child’s college education. It is similar to any other savings account; the amount of money saved is based off how much you can contribute each month. The earlier you can set one up and start saving, the better.
- It is very simple to start and requires very little maintenance. Typically, an investor or investment company will manage the ongoing investment of the account. If you are thinking about setting up a 529 college savings plan, consider speaking to a financial attorney or advisor to assist you.
- You may have a better chance of getting financial aid. Some people are under the impression it will negatively impact their chances of qualifying for financial aid. In fact, it does the complete opposite, especially if it’s in the parent’s names.
- It can bring a substantial tax advantage. Even though contributions may not be deductible, earnings will not be taxed when the money is taken out for tuition.
- Unlike many other investment plans, you are in control of the account at all times. For example, as an account owner, you can withdraw money at any time for any reason. However, it is important to keep in mind if you do not withdraw it and use it for college education or qualified purposes, you may be required to pay tax.
- If you save up enough money, you may be able to send your child off to college without taking on massive amounts of student loans!
Before signing up for a 529 college savings plan, it is important to look at the in-state tax benefits, weigh out your options, and consult with a financial attorney or advisor to help you along the way. Do you have a 529 college savings plan? How long have you had one? Please share your feedback below.