College Planning

Help Make College Dreams Come True
It’s never too soon to start planning

Whether the child in your life is 13 years old, 10 months old, or due any day, it’s never too soon to start planning. Thinking about the costs involved in a child’s education can be overwhelming, but the earlier you begin saving, the longer your money can work for you. Making prudent investment decisions can also make a big difference.

Help Make College Dreams a Reality

Once upon a time, college was a dream some parents had for their children and a goal youngsters might have for their future. That was then. Today, college isn’t just a dream; it’s practically a requirement. A bachelor’s degree can mean an income as much as 70% higher than that of someone with only a high school diploma, an advantage that Money magazine estimates translates to an additional $1 million in lifetime earnings.

Unfortunately, this greater earning potential is coming with an ever-increasing price tag. Today, the four-year cost of many private colleges is well over $100,000, according to the College Board, and by the year 2020, the cost of a four-year education could be more than $210,000 for a private school and almost $160,000 for a public school. A college education for your child or grandchild is still attainable, but it is not automatic. The good news is, there are strategies that can help make it happen.

Education Planning Tools

Although the obstacles may seem numerous, there are ways to begin saving for a college education. Today, education savings vehicles are plentiful and diverse, with a broad range of tax benefits and consequences, financial aid implications, contribution limits, and asset flexibility.

529 Plans

A 529 plan is an investment plan operated by a state, designed to help families save for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to the plan participant. There also may be state tax deduction benefits depending on your state’s plan. If you choose to invest in a 529 plan, you are not restricted to just the plan offered by your own state. However, there may be state tax implications for selecting another state’s plan.

One of the key advantages of a 529 plan is the unsurpassed income tax breaks on the non-deductible contributions. Any earnings grow tax-free for as long as the money stays in the plan. And when the plan makes a distribution to pay for the beneficiary’s college costs, the distribution is federal tax-free as well. Another major advantage is that the account holder stays in control of the assets in a 529 account. The named beneficiary has no rights to the funds. In fact, the account holder has the flexibility to change beneficiaries at any time, but only once per year. The account holder decides when withdrawals are taken and for what purpose. Most plans even allow account holders to reclaim the funds for themselves any time they desire. However, earnings will be subject to income tax and an additional 10% penalty on non-qualified withdrawals. In addition to these benefits, 529 plans are one of many ways to save for college. Once you decide on a plan, the assets are professionally managed either by the state treasurer’s office or by an outside investment company. And everyone is eligible to take advantage of these plans—there are generally no income limitations or age restrictions.