Another Financial Aid Option: 529 Savings Plans
When you hear discussion about paying for college, the first thing that comes to mind is financial aid, right? Grants, scholarships and even student loans cross your mind before you think of what’s in your own pocket. Now, I know that might sound strange, but it’s true if you think about it. Why spend your own money if you can get financial aid that will do the same?
Now, that’s nice to think about and all, but it’s not all that practical. Of course you have to use money from your own pocket to pay for college. If you can afford to contribute to your own education at all, then you should. But it can be hard to save money for college, especially as a young person. You probably don’t make very much money as it is and you don’t have all the time in the world to save. That’s why it’s really great if your parents had the foresight to set up a 529 Savings Plan for you.
What Is a 529 Savings Plan?
A 529 Savings Plan is a savings plan used to help families save money for educational purposes, such as college expenses. These plans are either categorized as prepaid or savings accounts. Each state decides what sort of plan it will offer, if any at all.
Basically, a 529 Savings Plan is a fantastic way to save money for college without having to think too much about it. Money is allocated to the savings plan as often as you’d like and the savings will just continue to grow as it accumulates interest. You can think of it as an investment into your future.
What Are the Benefits of a 529 Savings Plan?
The benefits of 529 Savings Plans are numerous and varied. One of the most notable benefits are the tax breaks.
While you are not able to deduct your deposits into the account on your taxes, none of the growing investment will ever be taxed. In fact, when you use the money to pay for your child’s college tuition, not a penny of it is lost to taxes.
Likewise, as a parent, you will have total control of the 529 Savings Plan. This means that your child will not be able to make withdrawals from the account without your permission. In fact, you remain in total control of the account because you were the one that deposited money into it.
Anyone, anywhere can use a 529 Savings Plan as well. Even if you are an adult and would maybe like to go back to school one day, you can open up a savings plan and deposit money into it whenever you want. It’s an easy way to build up money without having to make a lot of special arrangements.
Lastly, once you enroll in the plan, you don’t ever have to think about it again until you want to. If you sign up for automatic deposits, money will be taken out of your checking account each month—an amount you specify—and your savings will grow without you doing a thing. It really couldn’t get much easier.
One potential problem with college savings plans, however, is that there is no guarantee associated with the investment. The money you place in the savings plan is subject to the regular market conditions of the day and by the time your student enrolls in college, the amount in the account may not be enough to cover all expenses. However, if all goes well, you may end up with more money than you bargained for. That’s the benefit of a more risk-based savings plan. Even though you may not earn as large of a return as you’d like, the possibility of doing so can be worth the risk.
What is a Prepaid Tuition 529 Plan?
The prepaid tuition 529 plan is a very convenient way to save for college because it adjusts to the times. What I mean by this is that when you invest a quarter of the current tuition in the plan for a particular school, it will always equal one quarter of the tuition. So, even if the dollar amount has increased significantly, the amount you invest will always adjust to the current tuition rates and inflation.
What Are The Benefits of a Prepaid Tuition 529 Plan
The real main benefit of the prepaid tuition form of the 529 is that parents of college students get to forever preserve the current tuition rates so once their child goes to college, they’ll be paying significantly less.
You can also wait to invest in a tuition plan until a slight economic recession because the tuition rates general drop during this time. If you start investing when tuition is low, you lock in those rates forever.
Another benefit is that the parent or whoever owns the account is in charge of the money, not the student. This way, you can always be sure that the money is going toward tuition and tuition only. And, these investments are not taxable, making them even more of a likely choice for college savings.
However, it is important to note that many states are reducing this plan because the cost of tuition keeps increasing. The standard college savings plan is much more popular and is, perhaps, the more flexible of the two 529 plans.
So, you see, you can do a lot for your own college finances even before it comes time to apply for financial aid. Whether you are the parent of a future college student or an adult thinking about returning to the academic atmosphere, why not open up a 529 Savings Plan? There’s virtually no risk involved and you’ll begin to see a return on your investment almost immediately. It’s probably one of the best savings plans out there, so taken advantage of it ASAP.
529 Plans Vary By State
Just so you know, each state has its own version of the 529 plans, so make sure you do your research. Just because you live in a particular state does not mean you have to enroll in a 529 plan for that state. Do some research to see what state offers the best benefits so that you get more for your money. If your state does not offer a tax deductible plan, then it may be wise to look elsewhere. Likewise, spend some time on comparison. Which state offers the lowest fees? Which plan is the most flexible? Which states allow you to use an advisor? These are all very important questions to answer before you make a decision.
After all, this in your hard-earned money we’re talking about here. You deserve to have it placed into the right hands so that you know for a fact that your child’s college education will be financially covered once he or she is ready to enroll.