Saving for Future Education
A dive into 529 Plans.
Everyone well is aware of the extraordinary rise in college tuition cost.
“Between 1980 and 2020, the average price of tuition, fees, and room and board for an undergraduate degree increased 169%” according to a recent report from the Georgetown University Center.
The annual cost to attend a 4-year university full time in 1980 was a little over $10k. By 2020, that number has increased to north of $28k per year. The Private nonprofit college annual average was nearly $49k, compared to $21k at a public university.
According to the College Board, more than half of bachelor’s degree recipients from public or private four-year colleges graduated with debt in 2020, and the average debt load was $28,400.
As a parent, this never-ending tuition inflation can seem like an insurmountable hill for you and your child to climb in the future.
“Failing to plan, is planning to fail.”
While college education costs may seem daunting, small, consistent contributions to a savings plan can ease the future financial burden that comes with a college degree.
A 529 plan is a tax-advantaged savings account designed to be used for the beneficiary’s education expenses.
Even if you don’t see college in your child’s future, you can use the money in your 529 for a wide range of educational expenses including K–12 tuition, certain apprenticeship costs, student loan repayments in addition to college expenses.
Below are a few 529 Plan characteristics to consider:
Unlike a custodial account, with a 529 plan the account owner (you) maintains ownership of the account until the money is withdrawn. The account owner keeps control of the money, can make investment decisions, and can even change the beneficiary if plans change.
As long as the money stays in the account, no income taxes will be due on earnings. When you take money out to pay for qualified education expenses, those withdrawals may be federal income tax-free—and, in many cases, free of state tax too.
529 Plans are available to everyone, with no income restrictions. To open the account, you must be a US resident, age 18 or over, with a US mailing and legal address, and a Social Security number or Tax ID.
Anyone, of any age, with a Social Security or Tax ID number can be a beneficiary, even the same person who sets up the account.
Withdrawals from a 529 plan account can be taken at any time, for any reason. But, if the money is not used for qualified education expenses, federal income taxes may be due on any earnings withdrawn. A 10% federal penalty tax and possibly state or local tax can also be added.
There are exceptions to the 10% penalty—for instance, if the beneficiary receives a scholarship or attends a US military academy. Any earnings would still be subject to federal income tax and any state and local taxes.
Still not sure if a 529 Plan is right for you? Reach out to us to schedule a meeting at firstname.lastname@example.org .
What is a 529 Plan? – Fidelity
College Tuition Inflation: Compare The Cost Of College Over Time – Forbes Advisor
A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10% tax penalty.
This material is for informational purposes only and is not investment, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Triad Advisors, LLC does not provide tax or legal advice.