A college education is one of the most rewarding experiences a person can have in their lifetime, but it can also be one of the most expensive: 73% of US parents with children under 18 worry about funding their children’s education—which is where 529 college savings plans can come into play.
Having a 529 plan can take a huge financial burden off your shoulders and make you feel more prepared for the future. Here are nine tips to help you better understand what a 529 college savings plan is and how it can benefit you and your children.
- How a 529 plan works
If you didn’t know, a 529 plan is a college savings plan that can offer tax and financial benefits, and can be used for K-12 tuition (up to $10,000 per year) as well as college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans. Over 30 states have at least one 529 plan available.
- Research the right 529 provider
This is often the biggest challenge for people who want to save for college. With multiple options available, it can be hard to narrow your choices. There are many factors to consider, and it’s important to figure out what works best for you and your family. If you have questions, our guide can serve as a great resource on how to simply open a 529 college savings account.
- Use your 529 plan on qualified expenses
A 529 account can be used for a variety of education expenses. In addition to tuition, room and board, computers for college, and even special needs services and equipment are all qualified expenses. While some of the definitions of qualified expenses can be broad, it’s also important to note which expenses are not qualified for 529 plan use—for example, travel or student loans.
- 529 plans can be used for many types of education
Education is not just limited to a four-year program. Many students obtain degrees from two-year institutions, such as trade or vocational schools. For example, attending a culinary school or electrician program may be funded by a 529 plan. Look into your options—even some international institutions may qualify.
- Take advantage of the tax credits offered in over 30 states
Many states offer state income tax deductions or credits for contributions to a 529 plan. The amount will depend on where you live. In many cases, you’ll have to pay into your state’s 529 plan to qualify for a state income tax benefit. Find out here if you live in a state that offers this benefit.
- Ask your employer about a benefit that helps you save for college
The benefits world has seen a shift as most people graduate college with debt. Of the graduating class of 2019, 69% of college students took out student loans and graduated with an average debt of $29,900, including both private and federal debt.
With staggering numbers like these, it’s understandable that many parents would want to save for college with a 529 plan. It’s also not uncommon to ask an employer to help with education costs: An example of this is Gradifi’s College SaveUp program, where employers can ease the burden of saving for college by directly contributing to an employee’s 529 plan.
- Develop a strategy with your family
Sending your children to college can be a complex task. The cost of tuition has increased 645% since 1983. Having an open dialogue about college with your loved ones is just as important as opening the account itself. Here are a few strategies that parents can explore.
- Contributions to a 529 plan can come from anyone
The great news is that anyone can contribute to a 529 plan regardless of who owns the account. This means parents, grandparents, aunts, uncles, friends, or other relatives are eligible to help you save for college.
One thing to keep in mind is the gift tax that can be assessed on large contributions. To learn more about gift tax on 529 plans, read here.
- You can change beneficiaries—and it’s easy
Maybe your child decides they don’t want to attend college. No problem—you can change the beneficiary to another child, niece, nephew, or even yourself! While there can only be one beneficiary on each account, it’s an easy change that the IRS allows tax-free.
Educating yourself on how to best plan for college—whether for yourself or a loved one—is one of the most important things you can do to achieve your life goals, and a 529 college savings plan may be a solution to consider.
If you still have questions about 529 plans and how they work, feel free to reach out to the expert counselors at American Student Assistance® (ASA). For over 60 years, they have dedicated themselves to helping people manage their student loans and maintaining financial wellness.
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