Let's Take A Look At The 529 College Savings Plan

August 29, 2018

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With the start of a new school year many parents turn their attention to the future and how to best finance their child's college education. With the average student in the class of 2017 graduating with nearly $40,000 in loan debt, looking into a 529 college savings plan can really be beneficial.  This will allow you to pay a little each month with a goal of having tuition (at least a good portion) paid for when the kids have graduated high school.  But in the world of the 529 plan, it can be beyond confusing without the help of a financial planner.  That's because there is more than just one savings plan.  In short the 529 plans work similar to a 401K.  Your monthly after tax contribution is invested in a plan to help is grow on a tax-deferred basis for you and are totally tax-free if used to pay for qualified education expenses. However like with a 401K, there are several factors that can influence your decision. How much to put into the plan and which plan offer the best market return. With tuitions growing every year, will your 529 plan have enough funds for tuition 5, 10 or 20 years from now? That is many choose to go the pre-paid 529 plan route instead.  This plan locks in today's tuition price so you know that when it's time to enroll, there will be enough to cover costs.  However there is some drawbacks to the pre-paid plan as they are designed for participating in-state public schools. So if your student wants to attend a private school or an out-of-state public school, it will result in a refund of your contributions, plus minus some small amount of interest, such as 2% or 3%. A conventional 529 savings plan allow you to use the funds at virtually any accredited college or university. However a conventional 529 plan means you'll need to pay attention to the stock market as your child's plan could incur a loss if the market goes down. That's why you should talk with a professional to help you decide which 529 plan works best for you.  In any case, it makes good financial sense to save now for your child’s future education, even if they are older or don't end up going to college. Many 529 college savings plan funds can be diverted toward trade or professional school and even transferred to a grandchild or other relative.

SOURCE: She Knows, James Moore CPA & Morning Star

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