The cost of a college education has dramatically increased over the past decade. As a result, parents and students have continued to accumulate more college debt and the ability to pay it off has become a significant problem for many people.
This means that it’s more important than ever to start saving for college expenses now. One method that is growing in popularity is the 529 plan. A 529 plan is an educational savings plan operated by a state or educational institution designed to help families set aside funds for future college costs.
How does it work?
The 529 plan allows you to save on a tax-deferred basis and ultimately, if used for educational purposes, a tax-free basis. Additionally, contributions as well as gains on those contributions remain tax-free.
Investing in a 529 plan also encourages positive financial behaviors. According to Regina Lewis, a consumer trends expert, the deliberate action of saving encourages more saving. Studies have shown that families that contribute to 529 plans are far more successful in saving for college. In addition, their children are seven times more likely to attend college.
How can you choose the right 529 plan?
There are several online tools where you can plug in various data like the age of your child, years to go before the start of college, how much you are currently saving, and by what method. The tool also compares various state plans so you choose the one that is best suited for you.
Who can and cannot contribute?
Anyone can contribute for any beneficiary, including godchildren. Once the plan is in place, there are gift certificates that can be purchased for contributions and you can put your deductions on auto-pilot.
TIAA-CREF has started an initiative to help families save for college. To raise awareness of the benefits of 529 college savings plans, TIAA-CREF launched the Big Dreams Start Small $100,000 College Fund Contest. The winner will receive $100,000 contributed to a 529 college savings account for their grandchild or child sponsored by TIAA-CREF Tuition Financing Inc. TIAA-CREF understands that with the costs of higher education continuing to rise and families facingÂ tighter budgets, saving for college has become an extended family affair. Therefore, they have partnered with AARP College Savings Solutions in an effort to educate individuals, particularly grandparents, about the benefits of saving for college.
What are some ways to boost college savings?
- Put savings on auto-pilot. Have it automatically deducted so you don’t have to think about it. Saving money is easier and more effective when it’s automatic.
- Make contributing to a 529 plan a gift idea within your family. Instead of sweaters and video games, contribute to each child’s 529 plan instead.
- Seek grants and scholarships to combine with 529 plan savings. “You should be seeking the trifecta of grants, scholarships, and 529 plan savings,” says Lewis.
- Get started! There are no income limitations when setting up a 529 plan and you can get started for under $50.
Take advantage of a 529 Plan. An investment in education is still one of the best investments you can make.
Black Enterprise Columnist Jennifer Streaks is a financial expert, author and pundit. Continue the conversation by following her on Twitter @JStreaks or visiting her website www.JenniferStreaks.com.