{"id":268,"date":"2022-09-07T13:39:10","date_gmt":"2022-09-07T13:39:10","guid":{"rendered":"https:\/\/collegeaidpro.com\/?p=268"},"modified":"2022-10-27T13:24:50","modified_gmt":"2022-10-27T18:24:50","slug":"whats-a-529-plan-5-easy-ways-to-start-saving-for-college","status":"publish","type":"post","link":"https:\/\/collegeaidpro.com\/whats-a-529-plan-5-easy-ways-to-start-saving-for-college\/","title":{"rendered":"What’s a 529 Plan? 5 Easy Ways to Start Saving For College"},"content":{"rendered":"

It\u2019s no secret that college tuition is continuing to increase dramatically year over year. For the 2021-2022 school year, the <\/span>average annual cost of college tuition was:<\/span><\/a><\/p>\n

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  1. $38,185 for private schools<\/span><\/li>\n
  2. $22,698 for public, out-of-state schools<\/span><\/li>\n
  3. $10,338 for public, in-state schools<\/span><\/li>\n<\/ol>\n

    Multiplying these numbers by four years of college attendance (and, depending on the student and degree program, this could be closer to five or six!) may seem daunting. And these figures only account for raw tuition costs. They don\u2019t include any additional fees, application costs, room and board, travel, and so many other things that factor into the cost of college.<\/span><\/p>\n

    Luckily, families can get ahead by starting to save earlier.\u00a0<\/span><\/p>\n

    There are several ways that families can save for the cost of college. However, one of the most efficient ways to save for college is by leveraging a 529 Plan.<\/span><\/p>\n

    What\u2019s a 529 Plan?<\/strong><\/h2>\n

    A 529 Plan is a college savings account that is funded by after-tax dollars. However, money invested in a 529 Plan grows tax free. Beneficiaries of the account (college students) can withdraw the funds contributed (and the interest earned) without paying taxes, as well, as long as the funds go towards approved education-related expenses.\u00a0<\/a><\/span><\/p>\n

    Every state has their own 529 Plan, but you don\u2019t have to use your state\u2019s plan if you\u2019d prefer to house your college savings elsewhere. Investments are set up with a risk profile according to your child\u2019s graduation timeline, meaning investments in your 529 Plan get \u201cless risky\u201d the closer to graduating high school they are.\u00a0<\/span><\/p>\n

    If a beneficiary chooses not to go to college, the account can have a new beneficiary named. In other words, parents could transfer a 529 Plan to another child who was planning to attend college if necessary. Alternatively, funds can be withdrawn from the account for non-approved expenses \u2013 but there will be a 10% penalty, and the beneficiary will owe income taxes on the earnings in the 529 Plan.<\/span><\/p>\n

    How Can You Use a 529 Plan To Save For College?<\/strong><\/h2>\n

    College-bound families can use a 529 Plan to save for the cost of college in several different ways! Let\u2019s review five easy steps to ensuring you select the right plan for you, and using it effectively to reach your goals.<\/span><\/p>\n

    #1: Check Out Your State\u2019s Plan<\/span><\/h3>\n

    If your college bound student plans to go to an in-state school, your state\u2019s 529 Plan may be your best option. Many state plans offer special tax or tuition perks for parents who contribute to their in-state plan. For example, <\/span>the Arkansas 529 Plan<\/span><\/a> offers a unique tax deduction for parents who contribute.\u00a0<\/span><\/p>\n

    #2: Research Out-Of-State Plans<\/a><\/span><\/h3>\n

    If your student isn\u2019t planning to go to an in-state school, using your state\u2019s plan may or may not be the best option for you. Some states offer a wider variety of investment choices, and other perks that may be a better fit.\u00a0<\/span><\/p>\n

    #3: Set a Savings Goal<\/span><\/h3>\n

    Once you\u2019ve selected the plan you want to use, set a savings goal for yourself! If you have a student in middle or high school, you may be able to estimate the cost of college based on the type of school they want to attend, or what they\u2019re interested in majoring in.\u00a0<\/span><\/p>\n

    You can estimate the cost of colleges on your student\u2019s dream list using your free MyCAP account (<\/span>sign up by clicking here<\/span><\/a>). If your child is younger, and if you don\u2019t know how much college will cost when they finally enroll, you might consider setting a goal based on how much you can afford to save. For example, if you want to set a consistent $100\/month aside, start there. You can always adjust the amount you\u2019re contributing later as needed.<\/span><\/p>\n

    #4: Automate Contributions<\/span><\/h3>\n

    One of the easiest ways to leverage your 529 Plan is to automate contributions. \u201cSet it and forget it\u201d helps you to create a consistent habit of contributing to your 529 Plan and saving towards your goal. Most plans make it easy to set up automated contributions, and to create an automated investing strategy.\u00a0<\/span><\/p>\n

    #5: Make It a Family Affair<\/span><\/h3>\n

    Parents and students associated with the 529 Plan aren\u2019t the only ones who can contribute! Nearly all 529 Plans have an option to create a shareable link where anyone can easily contribute to the account as a gift.\u00a0<\/a><\/span><\/p>\n

    Get the family involved!\u00a0<\/span><\/p>\n

    When your kids are young, ask for contributions to their 529 Plan in lieu of holiday or birthday gifts. Offer the contribution link to grandparents, family, and friends, and make it easily accessible. Be clear about your goals, and that contributions are a future gift that keeps on giving!\u00a0<\/span><\/p>\n

    How Else Can You Save For The Cost of College?<\/strong><\/h2>\n

    It\u2019s important to realize that, while the 529 Plan is a fantastic college savings vehicle, there are other options available to families looking to put money aside for the cost of college.\u00a0<\/a><\/span><\/p>\n

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    1. Traditional savings accounts<\/b>. There\u2019s nothing wrong with going old school! Saving in a traditional savings account, money market fund, or CD. Anything you earmark for education expenses can help you get a leg up. This also provides a level of flexibility for what you use those funds for, especially if you aren\u2019t sure that you want your child wants to attend college.<\/span><\/li>\n
    2. Roth IRAs<\/b>. If your income level allows you to contribute to a Roth IRA, or if you want to open a Custodial Roth IRA for your child, you can reap tax benefits while investing for college. Keep in mind that there are some stipulations on when you can withdraw the funds and earnings from your Roth IRA. However, there aren\u2019t any \u201ceducation only\u201d expense requirements, so the account can be used in other ways.\u00a0<\/span><\/li>\n
    3. Alternate investing accounts.<\/b> A brokerage account or alternate investing vehicle may be another way to grow your education savings without the stipulations that come with a 529 Plan.\u00a0<\/span><\/li>\n<\/ol>\n

      Ready To Start Your Search?<\/strong><\/h2>\n

      Search available 529 Plans to determine what the best path forward is for you and your college-bound student.<\/span><\/p>\n

       <\/p>\n