Every year, parents suddenly start searching the term “529 plans”. Search interest tends to spike around tax season, policy announcements, or financial planning milestones, and that surge tells an important story.
Parents aren’t just curious. They’re actively looking for smart ways to save for college while navigating rising tuition, changing rules, and long-term family finances.
If you’ve recently found yourself wondering whether a 529 plan makes sense, or if you’re revisiting your savings strategy, you’re right on schedule. These spikes in attention often coincide with moments when families pause to reassess their financial priorities. The key is turning that moment of interest into informed action.
A recent educational survey conducted by T. Rowe Price has revealed that almost 45% of parents who are saving for college are using a normal savings account. Only 31% of parents are using a 529 plan for the college-savings purpose.
The prime reason so fewer people are saving through the this plan is people are not aware of the 529 college savings plan. The T. Rowe Price survey has revealed that nearly one-third (28%) of the parents are not aware of what this plan is all about.
So, if you are one of the 28% people who are still not aware of the benefits you’ll get from the college savings plan then please read the article once.
The 4 Key points that you should read first
The 529 college savings plan helps you to save for the education-related expenses of any student in your family. The education-related expenses include college or post-secondary education, tuition fees for elementary, secondary, and religious schools.
The person who opens the 529 account plan is called the ‘Account Holder’ or the saver.
The person for whom the 529 account plan is opened is called the ‘Beneficiary’ or the student.
The ‘Account Holder’ or the ‘Beneficiary’ doesn’t need to be two separate persons, there will be nothing illegal if both are the same person.
10 Benefits of a 529 Plan
Now, maybe you are one of those parents who have heard about the 529 plan but do not have any information about it. Below are 10 benefits of a 529 college savings plan.
1. You will get the benefit of tax while saving money in the 529 account
In many of the US states, you will get a tax deduction or credit for contribution if you save your money in the 529 accounts. Your money will grow on a tax-advantaged basis in the 529 accounts and if you spend the money saved in the 529 accounts, for qualified education expenses then you can withdraw the money in a tax-free way.
2. The 529 plan helps you to reduce the student loan borrowing
It is a concern that the expenses of higher education are increasing every year. You have nowhere to go but to take out the student loan with ahigh-interest rate. The 529 college savings plan can provide you with adequate support to lessen your dependence on the student loan.
According to student loan experts, there is nothing better option than a 529 college savings plan to reduce your student loan.
“Every dollar you save is about a dollar less you’ll have to borrow…. Saving money for college lets you avoid paying interest on the money you’d otherwise have to borrow.” Mark Kantrowitz, college finance advisor
3. The grandparents can benefit by contributing to the 529 college savings plan of the grandchild
The grandparents can benefit from the significant tax break by contributing to the 529 college savings plan of the grandchild.
If a grandparent owns the 529 college savings plan for the grandchild, it will reduce the potential tax liability of the grandparents.
The grandparents can also get benefit from the state income tax deduction as per their state rule if they contribute to the 529 college savings plan.
4. The 529 college savings plan is good for them who have started contributing in the account a little late
If you open the 529 college savings plan for your child and grandchild when he/she is in middle or high school, it will not be too late.
Eventhe college savers can also get the benefit by opening the plan a little bit late. According to the Washington Post, around 46% of Americans live in a state which offers state-specific-income-tax benefit for contributing to the plan. The plan can reduce your tax burden.
There are rules in the plan that if you have started late in contributing to the plan and want the asset to grow then you can withdraw the money from the account a little bit late.
5. Your home state-sponsored 529 college savings plan can provide you some additional tax advantages
Almost all the states, in the USA,sponsors the plan for accredited schools in any state. Many US states offer state income tax deduction for residents who are contributing to their home state’s 529 college savings plan.
This is the benefit of contributing to the plan of your home state, it will give you additional tax benefits.
6. The child won’t lose the other financial aids if you contribute to the 529 plan
Many parents fear that opening a plan can force their child to get less federal financial aid. But this is a wrong conception. The 529 savings plan is considered a parental asset. The child will never get less federal financial aid if the parents contribute to the plan.
7. With the 529 plan, both the amount and date of contribution will be in your hand
The advantage of using the plan is you can contribute in the account whatever amount you will be able to contribute and the annual payment date too will be as you choose to pay.
The minimum initial contribution requirement for most of the 529 college saving plans is $25 and the upper limit of contribution is up to you. Like the contribution amount has no limit, the payment date also is not bound by anything.
Many people prefer to pay a monthly contribution to the plan and others love to pay an annual contribution.
So, you can contribute any amount as you wish and whatever time you may like for contributing the amount.
8. You can have your own choice while selecting a 529 college savings plan
There is a good number of 529 savings plan options available to choose from. If your state is offering a prepaid tuition plan or if you have selected the private college independent 529 plan then you can choose from a wide array of 529 plans.
The selection will give you an advantage if your child prefers to go to a particular type of school.
9. Money withdrawals from the 529 account are both penalty-added and penalty-free
If the student earns a scholarship then the same amount can be withdrawn from the 529 college savings plan without paying any penalty and in tax-free manner.
For any urgent and nonqualified purpose if you need to withdraw money from the 529 accounts then you have to pay the federal income tax and 10% penalty.
However, for any urgent money requirement, you have other ways to obtain the required amount than making non-qualified withdrawals from the 529 plan or by going to the payday lenders.
None of the options will be considered a good decision taken by you. You’ll be penalized for the non-qualified withdrawals from the 529 account or have to make a payday loan debt settlement for repaying the urgent payday loan.
So, use other options if you need money for some urgent purposes.
10. The 529 college savings plan will provide special benefits for students that a traditional savings account cannot give you
To bear the educational expenses, the plan is best in the USA. The problem is parents are not aware of the plan and they cannot differentiate between the plan and the regular savings account, traditional and Roth IRA.
You won’t get any tax benefit for saving your money in the regular savings account, traditional and Roth IRA for educational purposes. You will get the tax benefit only by contributing to the 529 college savings plan.
So, when you aim to save for education, you should depend only on the plan.
One of the most common worries that a lot of parents tend to experience is that they aren’t going to be able to afford to send their kids to college. After all, college is one of those things that’s pretty much essential to get a competitive edge in their careers but it’s also one of the most expensive things that they will ever do. Of course, it’s not particularly productive to spend your time worrying about it. Especially because there are actually plenty of things that you can do in order to make sure that you’re in a financial position to send your kids to college. Here are just a few things that you may want to consider.
Start saving
The simplest and most obvious thing that you can do in order to make sure that you can afford to send your child to college is to start saving your money as early as possible. Having money stored away in a savings account means that when the time for college rolls around, you’re already prepared for it and you don’t have to worry about the ways in which it will impact your finances overall. Even if you’re just putting away a little bit here and there where you can, if you’re focused and disciplined about it, that kind of money can end up growing far more quickly than you might expect.
Grow your money
One of the best things that you can do in order to bring in the kind of extra money that you might need to send your child to college is to find ways to invest it. There are plenty of investment options out there for those looking to grow their money. Property is one of the safest and most profitable. Working with agents like William Pitt Sotheby’s Realty can help you find the perfect properties that are the perfect place to invest your money. Of course, investing always comes with risks so it’s worth being as cautious as possible so that you don’t wind up making any mistakes with your money.
Borrow
Taking out a loan in order to fund your child’s college experience is one of the most common options and for good reason. The truth is that a lot of people simply don’t have the means to pay it themselves so taking out a loan can be a great option. You just need to be sure that you’re borrowing carefully. Do your research and make sure that any loan you take out is fully accredited and that you’re not falling prey to any predatory practices.
One of the most important things to remember is that financing is something that you should think about from the very start of the college application process. The last thing you want is for your child to be attending their orientation and you’re only just thinking about how you’re actually going to be able to afford to finance their college experience. It’s something that requires planning and preparation. In all likelihood, it’s something you’ll be thinking bout far longer than your child.
One of the key elements of adulthood is learning to save for the future. Before your student leaves for college, it’s crucial to teach them how to manage money and save for the future. They will be bombarded with opportunities to spend, making saving a low priority. There will be the usual college expenses, entertainment and the temptation to frivolously spend while they are in college.
As their parent, you know the importance of saving for college and continuing to save for retirement. You can set an example by your actions and encouraging them to establish their own saving strategy. If you help them set up a savings account before college, it will be routine for them to put a portion of their earnings in the account during college; and, it establishes a good saving strategy after graduation.
Start in high school
CIT Bank can help you with their Savings Builder account. You can start an account for your student while they are in high school with as little as a $100 deposit. The savings you accumulate can be used for textbooks and any additional college expenses after high school graduation. Just a small monthly deposit of $100 quickly becomes $1000 and more to help your student with college expenses.
Here’s how it works
With $100 you can open an account with CIT Bank and earn up to 2.20% APY by making a single deposit of $100 or more every month. By using this online bank, it’s easy to grow and preserve your savings safely and securely because they are FDIC insured. There are no opening, monthly servicing, or line transfer fees.
You can easily access the funds in your account using free electronic transfers between your savings account and any other account at another bank; or, you can call and a check will be sent in the mail for free.
Funding your account with a minimum of $100 with an electronic transfer or check
You will receive an email confirmation and you are ready to start saving
The benefits of a saving strategy
By establishing a savings strategy for college, you are not only saving for those college expenses, but helping your student see the value and the benefit of putting money aside for the future. As the savings grow (with interest), you are teaching your student good money management and setting them up for financial success in the future.
No matter where you are in the college prep process, saving for college and paying for college is on every parent’s mind. Depending on your situation and the amount of time you have to save, here are some excellent resources that will help you understand college savings plans.
SavingforCollege.com
SavingforCollege.com offers a free Family Guide to College Savings available in either Kindle, Nook, or PDF format. The guide advises parents on when to start saving, how to start saving, and college savings alternatives. It also gives a brief explanation of the tax savings you can expect and how to maximize savings. There are also numerous links on the site itself related to 529 savings plans, college expenses, and a tool to use to view the list of state specific plans. There is also a college cost calculator that helps you determine the cost of college based on your child’s age and the amount you wish to contribute along with a monthly savings estimate.
AffordableCollegesOnline.org
AffordableCollegesOnline.org has created a 529 Savings Plan Guidebook which can be easily printed from your browser. In the guidebook you will gain a better understanding of:
By using this guide, you will gain a better understanding of:
How 529 savings plans work and how to establish one
Who is eligible to establish and contribute to a 529 savings plan
The pros and cons of other types of college savings vehicles
How much may be contributed to a 529 plan
The tax advantages associated with 529 plans
The best time to set up a plan
How to take the next step in obtaining some – or all – of the funds that are needed to fulfill the dream of a higher education.
5 Steps for Utilizing 529 College Savings Plan Funds
12 Questions to Ask Before Investing in a Prepaid College Savings Plan
4 Costly Mistakes Parents Make When Saving Money for College
Fidelty.com
Fidelity offers information you will need to plan your child’s educational future. On this site you can compare your savings options, find a 529 savings plan that meets your needs, learn about financial aid, and how much you will need to save.
University Parent
University Parent, an online resource for parents of college students and college bound teens, recently published an article: What is a 529 Savings Plan? How it Helps. The article gives an overview of the plans and what you need to know once you have one and how to use it.
If your college-bound teen is young, you have plenty of time to start saving. If you have a student in high school, you should read the information about aggressive portfolios and how to maximize your investment. The above resources should help you decide how much and where to invest your savings.
Wednesday’s child may be full of woe but Wednesday’s Parent can substitute action for anxiety. Each Wednesday Wendy and I will provide parent tips to get and keep your student on the college track. It’s never too late or too early to start!
The bonus is on the fourth Wednesday of each month when Wendy and I will host Twitter chat #CampusChat at 9pm ET/6pm PT. We will feature an expert on a topic of interest for parents of the college-bound.
Wednesday’s Parent will give twice the info and double the blog posts on critical parenting issues by clicking on the link at the end of the article from parentingforcollege to pocsmom.com and vice versa.
A few weeks ago I attended a virtual college event at CollegeWeekLive. I was impressed with the simplicity of the information and wanted to pass it along to all my readers who might not have had the opportunity to attend. This particular session was conducted by Kim Clark, staff writer for U.S. News and World Reports. She outlined some simple steps to raise $15,000 for college:
Up to $2500 from Uncle Sam–via tax credits (Hope and Lifetime Learning Credit)
Child labor–put your teen to work at a summer job ($8 an hour x 40 hours a week for 9 weeks=$2880)
Student loans–Stafford Loan ($5500 max per year at 7%); after student leaves college can sign up for payments based on their income (less than 15%)
Family savings–cut teen to occassional driver and save $; food bills will decline; stop subsidizing entertainment (food and insurance can =$300-$400 a month)
Scholarships and grants–leverage grades, test scores, athletics, arts for merit-based grants; apply for local scholarships
Friends and relatives–ask for college fund contributions instead of presents
Corporate sponsorship–some employers subsidize education for employees and families; UPromise
Reduce college expenses–reduce dorm costs (share with other students); watch meal plans; buy used textbooks or rent; earn cheaper credits at community college, AP classes or dual credit classes; sell student’s car (won’t need one at college)
The bottom line: $15,000 or MORE! Here’s how it all adds up:
Tax break-$2500 per year
Student loan-$5500 per year
Student job-$3000 per year
Parent savings-$4000 per year
Relatives-_____ (fill in blank)
Scholarships-____(fill in blank)
Corporate sponsorship-____(fill in blank)
Reduction in college expenses-_____(fill in blank)
By piecing together all these separate components, there is no limit on how much you can raise for college costs. At the very least you can raise $15,000, at the very most, the sky is the limit!
You can check out U.S. News and World Reports education section: Paying For College for more information and tips.
So many parents ask me the best way to save for college. Since every family is different, and their financial situation is unique it’s difficult to give a generic answer. But one thing is certain: saving will reduce your financial burden when your teen enters college. And as a responsible parent, you should plan for this expense, just like you plan for retirement.
Many experts agree these are the two best ways to save:
An Education Savings Account or Education IRA–This allows you to save $2,000 (after tax) per year, per child. Plus, this grows tax free! If you start when your child is born and save $2,000 a year for 18 years, you would only invest $36,000. However, at 12% growth, your child could have $126,000 for college!
A 529 College Savings Plan–Look for a 529 plan that allows YOU to control what funds are in the account. Do not choose a 529 plan that freezes your options or automatically changes your investments based on the age of your child.
Both of these options offer tax savings.
If you want to see how much you should begin saving, use this easy College Costs Calculator. But, be prepared for college sticker shock. Looking at it on paper can be quite sobering.
Here are two great sites that will help educate you and your family about saving for college.
Spend some time reading all the information because all the answers can be found on these two sites. Once you know the facts about college savings you will be able to make an informed decision.
It’s never too late to start saving. And remember…Preparation Prevents Panic!
