With a name like FutureSoBrite, it doesn't come as a surprise that we talk a lot about preparing our children for their future. And as parents, it's never to early to start thinking about, and saving for, our children's future college education. Unfortunately, the cost of that college education is approaching staggering amounts. According to current statistics, the average cost of tuition and fees for the 2015–2016 school year is $32,405 at private colleges, $9,410 for state residents at public colleges, and $23,893 for out-of-state residents attending public universities. What's a parent to do? Well there is one type of savings plan that is specifically intended to help us parents with saving money for college. It's called a 529 savings plan.
What's a 529 savings plan?
A 529 plan is a college savings account that's exempt from federal taxes. The plans were introduced in 1996 to help taxpayers put away college expenses for a designated beneficiary. These plans, named for Section 529 of the federal tax code, often have tax benefits at the state level for in-state residents. This only applies to states that have an income tax. In many cases, if the maximum deduction is surpassed in a calendar year, the deduction can roll over into subsequent years. However, each state enforces a specific total contribution limit.
Within each state, there are often multiple plans from which to choose, and dozens of state plans are sold nationally, regardless of where the account owner lives. Don’t limit yourself to only your state’s offerings, particularly if you live in a state with no income tax. Each plan comes with a host of corresponding fees, including maintenance and investment fees. When you open a 529 account, your account will be under the direction of the program manager. Most of the time, the program manager is a fund company or other financial institution, although occasionally it’s the state itself. Your money is invested in your name in custodial accounts, so even if the state or the manager has financial problems down the road, your money is protected.
The bottom line is that it's never too late (or too early) to start planning for the future. The website Savingforcollege.com is an excellent resource for more information. Find out more about which 529 plan is right for you here.
At FutureSoBrite we believe that every child deserves a bright future, and that education makes all things possible. We believe great education doesn't just happen in school, it also happens at home. We are educators and parents who believe lessons learned at home are the foundations for lessons learned in life. Because teachers teach the class, but parents teach the child.