Have You Secured Your Child's Future Education?

As the new school year kicks off this fall, parents are reminded of exciting, and at times intimidating tasks they can complete to help prepare their children for the future. Helping to ensure that your child has the opportunity to pursue higher education with less financial strain is one of the greatest gifts you can give – and this may be accomplished with a 529 college savings plan. Below are significant ways that establishing a 529 can help you set up your children for a future with less debt.

Known as “qualified tuition plans”, 529 plans are tax-advantaged college savings accounts. Contributions to a 529 account grow tax-deferred. Withdrawals are also tax-exempt if they are used for eligible education expenses, including tuition, fees, books, and room and board. 529 plans are sanctioned by Section 529 of the Internal Revenue Code and are sponsored by states, state agencies, or educational institutions.

1. Tax Advantages

Contributions to 529 plans grow tax-deferred, and withdrawals are tax-exempt for qualified education expenses. Named after Section 529 of the Internal Revenue Code, these plans are sponsored by states, state agencies, or educational institutions. Some states also offer tax deductions or credits for contributions to a 529 plan, making it an even more attractive option.

2. Flexibility

In terms of usage, 529 plans offer flexibility. They can be used to pay for qualified education expenses at any accredited college or university in the United States, and even some abroad. In addition to traditional four-year colleges, 529 savings plans can be used to fund community colleges, trade schools, and graduate programs.

3. High Contribution Limits

Unlike other tax-advantaged accounts, 529 plans have high contribution limits. Each state sets its own limit, but most are well over $300,000. This allows you to save a substantial amount for your child’s education without worrying about exceeding maximum contributions.

4. Parental Control

As the account owner, you maintain control over the funds in a 529 plan. You can decide when and how much money to withdraw, ensuring that the funds are used appropriately. Additionally, if your child decides not to attend college, or receives a scholarship, you can change the beneficiary to another eligible family member without penalty.

5. Minimal Impact on Financial Aid

When it comes to financial aid, a 529 plan is treated favorably. As a parental asset, they have a significantly smaller impact on financial aid calculations when compared to household income.

The sooner you start saving with a 529 plan, the more time your money has to grow. Compound interest can have a significant impact on the value of your investment over time. Starting early allows you to take advantage of dollar-cost averaging, a strategy that involves making periodic contributions (often monthly), designed to combat market volatility. By investing consistently over time, you navigate market highs and lows, which could potentially lower your overall investment risk.

As the new school year approaches, take the time to explore your choices and start saving for your child’s education today. By doing so, you may provide them with the opportunity to achieve their academic and career aspirations without the additional burden of debt.