Why Should I Have A 529 College Savings Plan?
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The biggest expense any family will ever have, beside paying for a house, is paying for a college education for your children. Brace yourself because the average private college can cost $40,000 a year for tuition, books, room, and board. The cost for a state college education can run any where from $11,000 to $20,000 a year.
Where a re you going to get such a large amount of money from? You can mortgage your house, use your retirement savings, or sign up for loans or scholarships. But all this still may not be enough.
There is an alternative to going into debt and that is the 529 College Savings Plan. The 529 plan is based on Section 429 of the Internal Revenue Code which allows you to set up accounts that you can put money into and it will grow tax free as long as you use the money for qualified education expenses.
It’s always best to start your 529 plan when the child is only an infant. Saving on a regular basis for a period of 18 years when the child enters college. If you saved enough you should have a nice balance to fund any college endeavor.
According to the website Whatisa529Plan.com there are 5 reasons for starting a 529 plan.
- Your investments grow federal tax free if the money is used for higher education.
- Costs are low for state-sponsored plans.
- You control the money. Billy can’t withdraw it and buy a nice new red sports car and ride off into the sunset. It’s your money. However, if you don’t use it for higher education, you may have to pay federal taxes on the investment gain.
- Saving is easy. Once you set up a plan, you can contribute by automatic withdrawal, and the plan will manage your investments for you, often at a very reasonable annual fee.
- Impact on financial aid is lower. Only 5.6 percent of the plan assets counts as assets when you apply for financial aid. Normally, 35 percent of other assets count.
- Almost anyone can afford to participate. You can start a 529 for as little as $25 a month and anyone, regardless of income, can participate.
If you want to prepare for your childs college education in the most sysytematic and tax efficient way, using a 529 Savings Plan will accomplish that.
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