It’s no secret that college is expensive. According to the Capital Group, the average cost of a four-year degree from a public in-state school is currently $81,737. In 2041, the cost is estimated to more than double, amounting up to $187,344.
A 529 college savings plan is one of the most commonly used methods to save for college. This is a state-sponsored investment account that enables you to save money for a beneficiary and pay for education expenses, including tuition, room and board, books, school supplies, and even student loan repayments.
How does a 529 plan work?
The first step in opening a 529 college savings plan is choosing between a savings plan or prepaid tuition plan. The savings plan allows you to invest money in potentially high-return assets, such as stocks. A prepaid tuition plan allows you to purchase part or all of the tuition at an in-state school.
Once you determine the correct type of plan for your family, it’s time to choose your beneficiary.
While a majority of beneficiaries are children of the account holders, it’s important to note that these plans are not limited to children or by any other type of relationship. As long as you have the required information for your beneficiary, such as Social Security number, date of birth, and address, you can open a 529 plan for your grandchildren, friends, family members, or even yourself!
Once your plan is active, you can begin depositing funds directly into your account and start building your portfolio. Much like other investment accounts, you can use a mix of conservative, moderate, or aggressive strategies to reach your goal. Additionally, you can set up automatic investments so you can focus on living life while investing in a brighter future.
What are the advantages?
There are a ton of advantages to 529 college saving plans – the biggest being the tax benefits. Regardless of how much you invest, your contributions will not be taxed by federal or state while in the account. Additionally, you can deduct your contributions from your taxable income.
When it finally comes time to use these funds, any withdrawals used for qualified expenses will not be taxed.
Another great advantage to a 529 plan is the flexibility. Life can change a lot in 18 years – if the original beneficiary decides not to go to a traditional four-year school, you can use these funds to pay for eligible arts programs or vocational trade schools, trade the account to another beneficiary, or even use it to pay off previous student loans.
Questions?
If you have any questions about 529 college saving plans, or how to open an account, reach out to us today at [email protected] or 301.990.9170.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Cambridge and Montgomery Financial Partners are not affiliated.
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