Prepare for the future with a college savings plan

College is an important part of your child’s future, but with education expenses continually on the rise, planning how to pay tuition can be daunting. In 2030—when a current first grade student could be heading off to college—the average cost of a four-year college education could be as much as $364,186 at an out-of-state public university or $469,481 at a private university.* That could mean a heavy burden for a young adult starting out in life.

Yet today’s families often have competing financial priorities that can lead to difficult choices. For example, 49% of Americans place greater importance on saving for their children’s education than they do on saving for their own retirement, according to a 2016 survey commissioned by RBC Wealth Management. What can a concerned parent or grandparent do?

Consider the benefits of a 529 plan

These state-sponsored investment programs are intended to help save for higher education. You can establish an account for anyone you want and the beneficiary can be of any age. Some key benefits of 529 plans include:

  • you maintain control of the plan’s assets, and can even transfer the account to another beneficiary;
  • the funds are professionally managed;
  • withdrawals for qualified educational expenses are federal income-tax free;
  • some states offer tax advantages for local residents; and
  • plan assets are excluded from the contributor’s taxable estate.

Grandparents can make it easier for their adult children to save for retirement by helping fund the grandchildren’s college expenses. Required minimum distributions from tax-deferred retirement accounts may be a source of funds. And up to five years’ worth of the $14,000 annual gift tax exclusion (i.e. up to $70,000) per 529 plan beneficiary can be accelerated to fund the 529 without being subject to gift taxes. 

College is an incredible time in your loved ones’ lives when they’re learning who they are and how to be responsible adults. With smart planning now, we can help you avoid worrying about huge tuition bills or family debt. Contact me today to discuss whether a 529 plan is right for your family.