529 Education Savings Plan | 05.16.08
I speak to parents every day who call me trying to figure out how they’re going to pay for college for their kids. It’s a heavy cross to bear. “Should we take a home equity line? What about the Parent Plus loan? Do you think I should just co-sign for a private student loan for my child and keep the loan in their name?” These are the most common questions I help them work through.
From a student’s perspective they’re just trying to get to school and are less concerned with the financial details. They don’t fully understand the financial ramifications that go along with the cost of education. Whether it’s $5,000 or $50,000 it doesn’t really matter to them; at least not while they’re in school. These serve as arbitrary numbers. But those numbers become their foe when it’s payback time.
The purpose of this blog is to introduce a 529 savings plan to you. This education savings plan is most useful to those parents having students several years away from college.
Here is a quick cliff note style overview for you.
- Every state has at least one 529 plan available.
- Two general types of 529 plans exist: prepaid programs and savings programs (prepaid tuition plans allow you to lock in future tuition rates at current prices while savings plan do not offer that same guarantee).
- Your investment grows tax-deferred, and distributions of the funds come out federally tax-free when you are paying for college.
- You are in control of the funds, and can even change the name of the recipient to another child or even yourself.
- 529 plans are viewed as a parental asset which is only assessed a maximum of 5.64% in determining a students Expected Family Contribution (EFC) on their FAFSA, opposed to a whopping 20% on non-529 assets that students hold.
As you can see 529 plans have great benefits and are a terrific way to save for your child’s college. I want you to save now and pay less later. If you plant it – it will grow.
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