Please Don’t Overlook this Money Saver for College Costs
Do you have a child whom you love and who you would like to help go to college? Your child? Grandchild? Niece? Nephew? Friend?
I know a lot of people (particularly parents) for whom college financial planning looks so overwhelming that they just don’t do it. They avoid it.
College costs go up and up; and, in the end, you don’t know if your child will go to college, after all. Saving starts to seem futile.
Help is here! If you do not know about them already, please find out about “529 Plans.”
Why? Because it will mean free money for you.
If you put money into a 529 Plan investment account and take it out for the college needs of the beneficiary of your choice, the growth in the investment is not subject to federal (and sometimes, state) income tax.
For example, if you were to put $500.00 into a 529 Plan in 2016, and the investment grew by 4%, after a year, the account would have a balance of $520.00. If you used that amount for the beneficiary’s qualified college expenses, you would have a $20 gain, but you would not pay federal taxes on that $20 gain.
Generally, the more money that you contribute to a 529 Plan account, the greater will be your tax savings. Generally, the greater length of time over which you contribute to a 529 Plan, the greater will be your tax savings.
The 529 Plan program was enabled by a federal law. The federal government, however, doesn’t sponsor 529 Plans–the states do.
Almost all states have 529 Plans. The states compete with each other for business.
Investors can invest in almost any state’s plan, regardless of whether or not they are residents of that state.
Some state programs have a higher return on investment. Some states offer advantages to in-state investors. An investor should weigh the advantages and disadvantages to each state’s plan. Some investors will weigh return on investment more highly than benefits for in-state investors. Some investors will not.
Some states, such as Pennsylvania, even permit state income tax deductions for a contribution to a 529 Plan.
If you decide to invest in a 529 Plan–you should compare the plans of different states–so that you get the plan with the best investment record–and which has other attributes that you may want (for example, state income tax exemption of investment growth).
You can do this research by going to the website of the College Savings Plan Network (www.savingforcollege.com). It is loaded with information!
The College Savings Plan Network is an affiliate of the National Association of State Treasurers. The website lists characteristics for each state’s plan–including any advantages given to in-state investors. After reviewing this website, you can weigh the advantages and disadvantages of each state’s plan.
P.S. If the child for whom you are saving decides not to go to college, the plan can be transferred to another beneficiary.
Please call me if you have any questions.