Saving for children's college tuition isn't always as easy as it sounds. While you may have had high hopes when your first child was born, pretty soon there are dance classes, athletic gear and music lessons to pay for. Then there's the orthodontist bills times one, and times two (or more). And, what about your own retirement savings?
529 plans are a smart way to save for a child's college plan. By starting the plan early enough, and adding to it little by little, paying future tuition fees is as simple as cashing them in or making annual withdrawals.
A 529 plan, called a qualified tuition plan, is sponsored by state or specific educational institutions to help parents save for their children's future tuition fees. Money goes into the plan after taxes, but withdrawals are tax-free as long as they're used for educational purposes.
Some states offer tax credits in lieu of deductions, so check with a CPA or financial advisor. Funds are withdrawn when the child is enrolled at a qualifying college, university or vocational program.
The sooner you begin saving, the more interest the account will generate. Begin funding the 529 plan at least 10 years prior to a child's freshman year to reap the best financial gains.
It's easier to save little-by-little than in lump sums, and funds can come from anyone. So, let grandparents, aunts and uncles know about the 529 plan. Holiday, birthday, and "just because" money can be added to the account, which helps to save more often.
Benefit on Financial Aid Forms
Another benefit of a 529 plan? It's treated differently in terms of household income and children's savings when it comes time to fill out the financial aid forms (FAFSA forms) required by most colleges, universities and vocational institutions.
Also, many 529 plan sponsors may offer "cash back" credit card rewards (typically 1%-2%) that are deposited directly into the fund.
Learn more about 529 plans and other options for successfully saving for tuition by contacting Retirement Advisors of America at (972) 684-5923, or by requesting a call from a Financial Consultant by clicking the button below.
Disclaimer: This blog is intended for informational purposes only and should not be construed as individual investment advice. Actual recommendations are provided by Retirement Advisors of America following consultation and are custom-tailored to each investor’s unique needs and circumstances. The information contained herein is from sources believed to be accurate and reliable. However, Retirement Advisors of America accepts no legal responsibility for any errors or omissions. Investments in stocks, bonds, and mutual funds may increase or decrease in value. Past performance is no guarantee of future results. Any of the charts and graphs included in this blog are not recommendations for the purchase and sale of any security.