What better day to think about a 529 account than on May 29th, 5/29?
With graduation season upon us, many young, hopeful high school graduates look forward to the next phase in their educational careers – college. However, not just the youth are envisioning college and bright dreams, but also parents, with nine out of ten believing their kids will pursue higher education1. With rising college expenses, these aspirations appear increasingly lofty, but a 529 plan can help make those dreams a reality. Planning in advance can help ensure that in a few graduation seasons from now, your child will walk across the stage to receive a college degree.
While successfully creating plans and reaching goals sounds appealing, you probably have many questions and concerns about the nitty-gritty of saving for college and the 529 plan. Here at LifeGuide, we want to personally address some of those issues for you and answer your questions.
“How much do I need to save?”
- In 2011, the cost of a year at a public university averaged more than $20,000, while a year of private school was approximately $28,500.2 To find out exactly how much to save, try using this simple college savings calculator. This calculator projects an estimated cost of schooling at the time when your child would be going to college.
- Frankly speaking, going to college is not getting any cheaper, while the importance of going to college continues to rise. Studies show that those with college degrees earn 74% more than high school graduates and experience higher job satisfaction and lower unemployment rates.3 At LifeGuide, we want to walk with you and show you that you don’t have to choose between financial security and your child’s future.
“I can’t afford to save right now.”
- Currently the collective outstanding student loan debt in the U.S. has surpassed that of credit card debt ringing in at a whopping $870 billion. The average student will leave with about $23,000 in debt.4 When put in perspective, the above statement then becomes: “How can I afford not to save right now?”
- Luckily, every bit of saving helps, and it’s never too early to start saving, although sooner is better. Perhaps your child is only one year old and learning to walk, but just like the child, every baby step counts and is something to celebrate.
“What’s the advantage of a 529 account?”
- A 529 account is a tax-advantaged college savings plan. The money you withdraw to pay for expenses, such as tuition, is free from federal and, in almost all cases, state tax. By looking at this interactive map you can see that exact details for each states tax benefits.
- Imagine a hypothetical investment of $100 per month for 18 years in a tax-free account. With an average return of 8% per year, that account would have grown to more than $48,000 (assuming no withdrawals were taken). The same hypothetical investment in a taxable account would have incurred $9,400 in taxes — enough for a full year of room and board at most public universities. 2
“How can I possibly reach my college savings goals?”
- Saving for college is often a family matter. This involves not only your financial family at LifeGuide, but also parents, grandparents, and even beneficiaries working together towards a common goal. By opening a savings account, everyone can help. With a 529, even though anyone can contribute, the control remains with the account owner.
- Even better yet, grandparents may opt to help grandchildren with larger gifts, which may also have estate planning benefits. Those seeking to transfer assets out of their estates can contribute up to $14,000 a year ($28,000 for married couples) toward a loved one’s college education without gift-tax consequences.
We hope that now every time you see 5/29 or write the date on a piece of paper, college planning and savings come to mind. Although it can be a burden, saving for college is not a load you need to carry alone.1 We’d love to help you. Call us at 1-800-423-2838 or email firstname.lastname@example.org to begin the conversation.
1Source: Sallie Mae, How America Saves for College (2010)
2Source: The College Board (2011)
3Source: Georgetown University Center on Education and the Workforce (2011) and The College Board (2010)
4Source: The Federal Reserve Board of New York, Grading Student Loans (March 2012)