With college tuition pricing rising rapidly each year, many parents find themselves growing increasingly concerned with the cost of continuing education. Contrary to what some might think, tuition increases aren’t just affecting the private, more expensive schools. Over the past 10 years, the cost of state and city universities has also been climbing. A good education can certainly be pricey, but it’s also a necessary step in setting oneself up for a lifetime of career opportunities. Therefore, parents should take the necessary steps to ensure that they are able to put their kids through college. Jim Barker of Barker Insurance Services is a personal financial representative who has helped his fair share of clients faced with this very predicament. According to Barker, one good way to assure that you’ll have enough money to send your children to college is to open a 529 college savings plan.
Named after Section 529 of the Internal Revenue Code, a 529 college savings plan allows people to set aside funds that can be used for future educational costs at any accredited college or university in the country (along with some institutions outside of the United States). These plans work similarly to retirement plans in that your contributions may be invested in other instruments in order to allow your principal to grow. Monetary contributions that are made to 529 college savings plans are not subject to any “upfront” tax benefit, as they can only come from after-tax dollars. However, earnings accrued over the years based on the savings plan’s performance are not subject to federal taxation. Additionally, when the time comes to withdraw those funds to pay for your child’s college, the money you can take out is also exempt from federal tax. As far as state taxes and contributions go, the laws vary from state to state. While some states offer better tax breaks than others, generally-speaking, 529 college savings plans come with a generous tax treatment overall.
Since 529 college savings plans have the ability to grow significantly over time, the best way to take advantage of this option is to open one up as early as possible. You can start funding a 529 plan as soon as your first child is born. In fact, funding for a 529 plan doesn’t have to come from a child’s parents alone; grandparents, other relatives, and even family friends can contribute to a child’s education by making payments to the plan.
So then what are the drawbacks? According to Barker, there aren’t too many. However, parents should be aware that a 529 college savings plan can impact the extent to which the child receives financial aid. The plans can also be subject to market volatility depending on how they are invested, but by listening to a trusted financial professional and making wise investment decisions, you can protect your funds from falling victim to rapid decline.
Whether you’ve got a newborn or a teenager living under your roof, if you don’t already have a 529 college savings plan in place, then contact your personal financial representative to get the ball rolling. After all, the cost of college isn’t getting any cheaper, so the sooner you get started, the better off your child is going to be.
