Piggy banks are fun gifts for children. Remember the sound of change hitting the bottom and trying to shake it out later? Those nostalgic memories can also remind us of the important lesson we learned about saving. When you look at your finances, you may wonder how you’ll pay for your child’s college education. Among the various options to consider is a 529 account — a college savings plan with the potential to grow tax-free.
Timing: Start Now
Even if your student is in high school or starting college in the fall, you can still take advantage of the tax benefits of a 529 savings plan. And if you started saving using a different type of account, consider the benefits of moving this money to a 529 account. You don’t have to wait until May 29, 529 College Savings Day, to check out the advantages.
Costs: How Much is Enough?
In its most recent survey of college pricing, the College Board reports that a “moderate” college budget for an in-state, public college during the 2016–2017 academic year averaged $24,610. Given this considerable figure, whether you have an infant or a junior in high school, every bit of savings helps. Use a college calculator to help determine what you need to invest to meet your family’s personal goals.
If you have younger children, now is an ideal time to open an account. Accounts can be established with as little as $25, so take this step and fund what you can, when you can.
A 529 account can help with more than just tuition and boarding; it can help prepare you for surprise expenses, such as computer software and internet access, that you may not be aware of until your child is in college. And you can also take advantage certain tax benefits. A tax advisor can provide more details on these potential advantages.
Benefits of the Plan
Affordable to Start
- Most plans require $25 or less to open.
- There are no income restrictions.
- Some plans offer matching grants, rewards programs or gifting services that let others make contributions.
- Funds from your 529 plan can be used at any accredited two- or four-year college, vocational or technical school or graduate school—anywhere in the United States.
- You can withdraw funds for a variety of qualifying expenses, and there also is forgiveness on withdrawal penalties if your child earns a scholarship.
- If you don’t use all the funds, the account can be transferred to another child or saved for future generations.
Expenses: Understand the Fees
529 products vary between states, and so do their costs. Most states allow you to contribute to any state’s plan. However, the plan itself will have specific fees for maintaining the account and for the underlying product, which can differ significantly from plan to plan. Do your homework to make sure you find the best plan for your situation by analyzing maintenance fees.
Communicate: Share the Priority with Family Members
If you’re looking for a way to streamline birthday and Christmas presents, this is a great option to provide for extended family members. Instead of getting all the latest games or gadgets, you could ask certain family members to consider an account contribution instead. This can be a great way to help the next generation understand the importance of saving, too.
Make Progress: Keep Calm and Move Forward
Remember, now is always the right time to start planning for your child’s education. As college costs continue to rise, saving as much as you can before they graduate high school can make a big difference in their—and your—financial future.
Financial planning can be helpful in preparing for the cost college expenses. Learn more about college savings planning. Or call us to discuss your family’s needs.
The opinions expressed are those of Brent Hoskins and are no guarantee of the future performance of any American Century Investments fund.
This information is for educational purposes only and is not intended as investment or tax advice.
The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors.
As with any investment, withdrawal value may be more or less than original investment.
The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.