There’s a terribly shocking number that every expectant parent should be aware of: the cost of college tuition in 18 years. According to Campus Consultants, Inc, the average cost for a private university could be as high as $130,000…a year. The picture looks just bleak for students at state universities, with the average bill projected at over $41,000 annually.
And you thought college tuition today was bad.
The good news is that there are ways to help defer the costs of college. Scholarships and grants can help defer the costs for the best and brightest, and financial aid based on financial need can help minimize the burden for lower-income families. But one of the most critical, and often overlooked pieces of the college tuition equation comes in the form of savings.
You won’t need to cover your child’s entire college tuition with your savings alone, but savings can play a big role in covering any gap in tuition costs. If you save just $100 a month from when your child is born until they head off to college, you’ll have almost $20,000 – and that doesn’t even include any interest, earnings or tax breaks you’ll get.
Already convinced that saving for your child’s future education is the right thing to do? Looking for the most strategic way to start putting money away? That’s where a 529 college savings plan comes in.
What is a 529 college savings plan?
A 529 plan is an education savings plan dedicated specifically for helping families save money for college. A 529 plan is very similar to a 401(k) retirement plan – the funds are meant to be used for a specific purpose, you have the chance to grow your savings through investments and you may be eligible for tax incentives.
Who offers 529 college savings plans?
Most states offer a 529 plan and some states offer tax incentives for residents in that state. You can also invest in another state’s plan, if you prefer their investment options over your own state’s. If you want to compare and contrast different 529 plans, visit savingforcollege.com.
How does a 529 college savings plan work?
529 plans can be used for qualified educational expenses at most college across the country – that means tuition, room and board and even textbooks. And if you have a 529 plan in one state, you can still use that money to pay for an out-of-state college. You also stay in complete control of the account. In most cases, your beneficiary (e.g. your child) does not get to decide how the money is spent. Finally, regardless of what state you live in, you’ll get federal tax benefits for contributing to a 529 plan.
How do you know if a 529 college savings plan is right for you?
Deciding whether or not to open a 529 plan depends on your timeline and priorities. If you’re looking for a smart, tax-advantage savings vehicle to stash away your college savings, a 529 plan is a great option. How much to contribute to your 529 plan is entirely up to you. Just make sure you keep other longer-term goals, like your own retirement funding, in the picture.