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. In fact, 73% of U.S. parents with children under 18 worry about funding their children’s educational costs, which is where 529 college savings plans come into play. Having a 529 to help save for college can take a huge financial burden off of your shoulders and can make you feel more prepared for the future. Here are 9 tips on what a 529 college savings plan is and how it can benefit you and your children.
- Open a 529 Plan
If you didn’t know, a 529 plan is a college savings plan that can offer tax and financial aid benefits. 529 plans can be used for K-12 tuition as well as college costs. There are two types of 529 plans: college savings plans and prepaid tuition plans, and over 30 states have at least one 529 plan available.
- Research The Right 529 Provider
This part can be the hardest for many people who want to save for college. With multiple options available it can be hard to narrow down your choice. You can make this decision as simple or complex as you want, and it is important to figure out what works best for you and your family. If you have questions, this guide serves as a great resource on how to simply open a 529 College Savings account.
- Use Your 529 Plan on Many Qualified Expenses
A 529 account can actually be used for many different education expenses. Up to $10,000 per year for K-12 education can come from a 529 account. In addition to tuition, room and board, computers for college, and even special needs services and equipment are all qualified expenses. Some of the definitions of qualified expenses can be broad so it is also important to note what is unqualified such as travel or student loans.
- 529 Plans Can be Used For Many Different Types of Education
Education is not just limited to a 4-year program. Many obtain degrees from 2-year institutions, trade schools, or vocational schools. For example, attending a culinary school or electrician program can be funded by a 529 plan. Look into your options because even some international institutions qualify for these options.
- 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, and in many cases the taxpayer must pay to their 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 are coming out of college with debt. Of the graduating class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800, including both private and federal debt. With staggering numbers like these, it is hard to imagine parents wouldn’t save for college, and not uncommon to ask an employer to help. An example of this is Gradifi’s College SaveUp program, where employers can help their employees by directly contributing to their 529 plans and ease the burden of saving for college.
- Develop a Strategy With Your Family
Sending your child to college is not an easy or simple 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 and children can use before sending their child to college.
- Contributions to a 529 Plan Can Come From Anyone
The great news about this is that anyone can contribute to a 529 plan regardless of who owns the account. This means you, grandparents, aunts, uncles, friends or other relatives are eligible to help you save for college. One thing to be mindful of is the gift tax based 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 do not 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 is an easy change that the IRS allows tax-free!
Hopefully this information increased your knowledge of 529 college savings plans and how they work. If you still have questions, feel free to reach out to the expert counselors at American Student Assistance® (ASA). For over 60 years, they have been dedicated to helping people manage their student loans and maintaining financial wellness. Educating yourself on how to best plan for college is one of the greatest things you can do and prepare for.