As our kids and grandkids start to think about heading back to school, many parents may be thinking about college. For some, that may be further away than for others, but with the cost of a four-year institution skyrocketing in the last few decades, it can be a real concern for many parents. However, there already exists a savings plan for college that has been significantly underutilized by American parents and grandparents.
College debt is blamed for sinking millennials' dreams of owning a home or getting out from under their parents' roof. It's ironic that one of the best means of saving for a college education is experiencing a slump in awareness among Americans. One study reports that as many as 75% of Americans didn't know about 529 plans in 2015, compared to 66% in 2014. What's behind the decline?
An article on thestreet.com, "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem," asks how this is even possible, given the fact that college debt is a huge issue in academia and the media—as well as in thousands of dining rooms across the U.S. The cost of education is a big concern for many Americans, but there's a downward trend in 529 awareness that persists year after year.
Experts say that a 529 plan is a "no brainer." 529 funds can be used for any qualified educational expenses at any college in the U.S. and many abroad. A 529 savings plan can be passed from one generation to the next. The funds don't expire, so a parent or grandparent can start saving for children that aren't even born yet in a 529 savings plan. Plus, you can use or purchase any 529 savings plan from any state. Consider which state your purchase your 529 plan from carefully; different states have different college funding plans.
To get the most bang for your 529 plan buck, you need to be creative. Get the whole family involved, such as having grandparents superfund a 529 plan by contributing five years all at once. They can make a five-year election—contributing the maximum allowed for five years all at once—which is a $70,000 contribution. This also helps the grandparent with estate planning by placing their assets in a tax-deferred account for the benefit of their grandchild. There are some similar benefits in leaving a younger beneficiary money in an IRA account: the compounding interest significantly contributes over time.
Sallie Mae, a leading college financial services company, suggests this 1-2-3 approach when using 529 plans:
- Start a savings account. Use this as your child’s college fund and deposit gifts and take advantage of free services that let you earn cash back to save for college.
- Make regular contributions. Set a goal and create a routine of depositing money. A small amount will add up over time, and automatic deposits make saving easy.
- Consider tax-advantage options. You can make your money work for you in a dedicated college savings program, such as a Coverdell Education Savings Account, prepaid state college savings plans, or a 529 college savings plan.
It's well known that America has a massive student loan crisis. The 529 is a clear solution.
Don’t forget that the most important part of any estate plan is aligning assets correctly with the plan, including a 529 plan! For more information on the importance of asset alignment, verification and tracking, explore our website and contact us to schedule your consultation today!
Reference: thestreet.com (May 22, 2016) "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem"