Rising tuition costs and America’s whopping $1.4 trillion student loan debt have prompted many parents to make saving for college a financial priority.
Savvy savers know that it isn’t enough just to put money aside for college. Rather, a 529 college savings plan is the way to go. Here’s why:
Saving is cheaper than borrowing
Establishing a college savings plan now can save you thousands in the future. For example, if you plan to rely on student loans to support college costs, be prepared to pay more than twice as much for that education, according to Goal Investor.
Fortunately, many American families understand the math and don’t rely on loans to fund education.
“In 2017-2018, families spent an average of $26,458 on college," according to Sallie Mae’s How America Pays for College report. "Income and savings covered nearly half of that cost."
A 529 plan is an investment
More than just savings plans, 529s are investment vehicles which can offer you growth in ways other savings accounts can’t. Your 529 funds are invested, allowing you benefits akin to your 401(k).
My529, Utah’s official 529 college savings plan, offers 14 investment options to allow account owners the benefits of several different investment strategies.
When it comes to college expenses, it’s not just tuition costs you have to consider. There are also expenses for computers, software, books, supplies, equipment, and room and board. That means you'll need every penny you can get. The good news is, with a 529 college savings plan, you can grow your savings tax-deferred.
Earnings used to cover higher education expenses won’t be taxed on the federal or state level, allowing you to put those saved dollars toward funding your child’s college career.
Tax credits or deductions
More than 30 states offer full or partial state tax deductions for contributions to a 529 plan, according to savingforcollege.com.
In Utah, individuals, couples, corporations and trusts benefit from a five percent state income tax credit for annual contributions up to a certain amount, according to My529.
The ability to write off 529 contributions reduces your state income tax burden, giving you the freedom to use more money for your child’s education.
You can use the untaxed money in your 529 plan to cover expenses at the college, university, post-secondary, vocational or technical school level. You can even use it for tuition at K-12 schools, according to My529.
When you have a 529 account, you choose how to get the most out of your investment. Depending on your goals, you can opt for a plan that requires low to no minimum contribution, or go with the option that allows non-account owners to contribute, according to Student Loan Hero.
Unused funds aren't lost
If you invest more than you end up needing for education, the great thing about a 529 account is you can withdraw funds and use them for non-qualified expenses.
“529 Plan accounts are not ‘use it or lose it’ accounts," according to Forbes. "The money in the account is always yours to withdraw, but you will owe tax on the earnings when you withdraw money for non-qualified expenses.”
Easy to open
Anyone 18 or older can open a 529 account for free. You don’t need to be related to the beneficiary, and you can even open an account for yourself. You can also open an account in Utah even if you aren't a resident.
Learn more about a 529 plan at my529.org. It’s never too soon or too late to start saving for an education.
Before investing in my529, consider the benefits of your home state’s 529 plan (if any), and read the Program Description to learn more information about the investment objectives, risks, charges and expenses, by going to www.my529.org or calling 800-418-2551.