Saving for College:
Prices continue to rise, making your contributions more important
By Bernard Freeman
Undergraduate tuition, room and board and associated fees rose nearly 30 percent over the last decade.
In fact, the National Center for Education Statistics tracked notable increases across the board, from public schools and nonprofit institutions to private for-profit colleges. Experts expect those numbers to continue to rise for the foreseeable future.
That’s made it all the more important that you save, and begin saving early, in order to have a deep well of funds to ensure your child’s education – even if it’s just to augment possible scholarships or grants, if any. Here’s how to get started:
A SIMPLE PLAN
The most widely used qualified tuition option is called a 529 plan. Sponsored by states, educational institutions and other agencies, the plans are divided into education-savings and pre-paid tuition options. The pre-paid option allows guardians to purchase credits at participating institutions for future fees and tuition – but, crucially, the prices are locked in at current levels. There are restrictions: These funds can only be used at colleges and universities, not secondary or elementary schools – and they typically may not be used for room and board. There are also often residency requirements.
Educational savings plans, on the other hand, allow guardians to create an investment account for future expenses. This may be applied to tuition, room and board and fees. Withdrawals can be directed to any institution nationwide, and also to some schools which are outside of the United States. They can be used for elementary and secondary learning as well, but there is an annual cap.
TAX IMPLICATIONS
There are certain tax benefits with a 529 plan, but they are dependent on the options and the state in which you live. Some states allow deductions on your taxes based on annual contributions, or even matching grants. 529 plan withdrawals are exempt from federal taxes, and in some cases are not subject to state income taxation, either.
FINANCIAL AID
529 plans may have an impact on the level of financial aid that’s offered through your child’s school. Balances from these plans, for instance, may be factored into a student’s need-based grants. But for those who rely on the bulk of college funding from student loans, the 529 plan helps limit the amount of debt carried after graduation.
