According to www.collegetuitioncompare.com, average tuition for the 2023-2024 school year at public 4-year institutions was $11,823.00 for in-state residents and $21,802.00 for students who hail from out-of-state. Private 4-year schools come in at $28,417.00 for tuition for all students on average. And before you think you can figure that out, don’t forget to factor in average living expenses (room & board) which are an extra $15,407.00 per year for on-campus living and $16,874.00 for those who choose to live off-campus. USA Today recently put it in focus by crunching the numbers and letting us know that current students are paying about 179.2% more than their parents paid twenty years ago for a year at a 4-year public university. No wonder families are stretched thin and student loan debt is exploding. Though it is still a heavy load with all the other expenses with which families are faced, more and more are embracing the 529 Plan when their children are young to try to combat the high costs of college they will face down the road.
529 College Savings Plans are the best gift the IRS gives families who are attempting to save for college. An account is set up by an adult who is the owner and an individual child is named as the eventual beneficiary of the funds. This is important. There are other ways to save for a child like UTMA (Uniform Transfer to Minors Act) or UGMA (Uniform Gifts to Minors Act) accounts, but these dictate that the funds must be transferred to the young person when they reach the age of majority (either 18 or 21 depending on the state). I don’t know about you, but I wouldn’t want all the funds my family had saved for my 18-year-old’s college turned over to them on their birthday to buy a sports car. With the 529 Plan, the adult calls the shots and asks for distributions from the plan that can be spent on approved educational expenses for the benefit of the child. When the account is set up, a contingent owner is usually named in case the original owner passes before the funds in the account have been depleted. Why is the 529 such a great deal? Over time, the adult owner and anyone else can contribute funds to the beneficiary’s account. It is invested appropriately depending on the age of the child and all the growth in the account will never be taxed if the monies, when distributed, are used to pay for approved educational expenses like tuition, room and board, fees, books, computers, internet access and software at any accredited college, graduate school, vocational school or institution where special professional certifications can be earned. Tax-free growth like this is a nothing to sneeze at!
There are a multitude of 529 Plans from which to choose. Every state in the Union and the District of Columbia have their own plans and a family has a lot of flexibility as to which one they can choose. It is not necessary to choose the plan in the state in which you live or the state in which your child expects to go to school. A family who lives in Iowa could open accounts (one for their daughter and one for their son) with the Massachusetts state plan and send their daughter to a 4-year public university in California and their son to a private school in Maine. There are a few considerations, though. Some state plans allow their residents to deduct 529 Plan contributions on their income taxes and a few will even “match” a portion of the contribution and add “free” money to your account. But don’t be hasty and allow resident benefits to blind you to other considerations as you do your due-diligence into which plan to choose. Be sure to look at plan fees and the historical returns of plans. If your state allows you to deduct contributions and the state income tax is 2.00% but the plan sponsor charges an up-front fee of 5.00% to buy shares in the state fund or the fund has had poor returns as compared to the stock market as a whole, you would be better off looking elsewhere. Checking out 51 individual plans is a heavy load, so it might be worth your while to work with a financial professional to help you comb through the choices.
Do you have questions about 529 College Savings Plans or other questions about saving in general? I’d love to help! Please email [email protected] or call 563-949-4705.