College Savings Plan

Education funding for the kids, or yourself

A college education is sometimes not an option for many who want to find stable and meaningful work after high school, because of rising costs. Many are concerned that post-secondary education will soon be available only to the wealthy. One way that seniors are helping is by making contributions towards their grandchildren’s college savings plans. Starting a college savings program early is the best way to secure a quality education for the future.

The bad news is that college is expensive, but the good news is that there are more investment options available now than ever before. Whether you opt to go with savings, taxable investment accounts, U.S. savings bonds or a 529 plan, there are plenty of options out there. The creation of the 529 college savings plan has made it easy to finance a post-secondary education.

529 College Savings Plan

Created in 1998 and named after section 529 of the Internal Revenue Code, a 529 plan is an education savings plan operated by a state or educational institution to help families set aside funds for college. The 529 college savings plan provides a simple solution for parents and grandparents to save money for their children’s future education, with further encouragement by way of federal and state tax benefits.

Your investment grows tax-deferred and college costs come out free from federal taxes. Different states offer their own 529 college savings plans, each having different benefits. You don’t have to invest in your current state’s college savings plan or even the state with the destination college that your child or grandchild plans to attend. Comparing all the 529 plans will enable you to choose the best one to reach your college savings goals.

Another benefit of the 529 college savings plan is that you stay in control of the account. Besides some minor exceptions, the beneficiary has no rights to the investment money. You control when and why the money comes; it’s even possible to pay the money back to yourself whenever you wish, although you will incur some penalties in the process. There are no general income limitations with many state plans allowing over $300,000 per beneficiary, and there are no age limits either. If you’re thinking about going back to school, it’s simple to set up a 529 college savings plan for yourself!

Easy to Manage

Lastly, a 529 plan is convenient to manage. After choosing one of the available state college savings plans, just fill out the enrolment form and make your regular deposit. You can simplify this even further by setting up automatic deposits. The account is managed by either the state treasurer’s office or an outside investment company – not you. You also won’t have to deal with reporting taxable or non-taxable earnings until the year that withdrawals happen.

Before setting up a college savings plan, most experts recommend that you first look after your own retirement investments; you don’t want to help the grandchildren only to become a burden to their parents afterwards. Involving the parents is also recommended, since your financial contribution will impact any financial aid applications submitted for the student.