In this fast-paced environment of rising college tuition, overwhelmed Americans continue struggling to make ends meet with regard to affording higher education. Inflationary pressure has caused tuition costs to reach unprecedented levels. The net cost (the cost after scholarships, grants and federal tax benefits) that in-state residents will pay for public colleges this year, rose 4.6% to an average of $16,510. That's more than twice the rate of inflation, which rose just 2% over the last 12 months. As time passes, this trend only seems to be worsening.
Taking financial initiative can be the differentiating factor between affording and not affording these higher education costs. One of the strategies used to offset these rising costs are 529 college savings plans. These tax-advantaged investment vehicles were designed in the United States in effort to encourage Americans to save for future higher education costs.
529 Plans are useful education savings plans that can provide tax benefits and tax-deferred growth. These vehicles can be a very powerful tool for any family disciplined enough to save decades in advance. Investors can make contributions up to $300,000 throughout the plan’s lifetime. Some states offer residents an income tax deduction for a portion of their contribution. Additionally, there are no income limitations on donors making contributions. Parents do not need to be concerned about a student using these funds for purposes other than school. Assets in the 529 account will remain under the donor’s control; even after the student is of legal age.
It is important to note that for 529 Plans, there is one major restriction when it comes to distributions. Funds withdrawn from a 529 Plan for purposes other than education, will be subject to a 10% penalty, as well as federal income tax on the growth of the account.
The inevitable cost of college tuition is one that no one can afford easily, nor escape. The general population continues to struggle to pay for such highly inflated tuition fees. This struggle truly creates the need for an alternative savings strategy. The key to affording college is to start saving earlier than when your child reaches high school, middle school, or even elementary school. 529 college savings plans can be helpful in making higher education more affordable. With tax benefits, saving strategies and guidance, it is far easier for overwhelmed Americans to save for and one day alleviate such rising costs. Although savings may only be used for educational expenses, these savings plans force a discipline upon donors that they may have otherwise lacked. Don’t let the opportunity pass you by, for every year, week and day that elapses, you could have just inched that much closer to achieving future higher education affordability for your children.
Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.