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How much will college cost when my kids are ready to go?
College costs are rising! According to the U.S. Department of Education, the average cost of a four-year education at a public university is currently $34,000, and almost $90,000 for private colleges. Over the past decade, expenses at public institutions have increased nearly 40%, and costs will almost certainly continue to rise.
Estimating future college costs can be difficult! Many factors must be considered, including public vs. private colleges, instate or out-of-state, will the student live at home or in another residence. One thing is for sure, tuition rates have been increasing at more than twice the rate of inflation for over thirty years and will continue to rise in the future.
You should consider college an investment for the future. Data from the U.S. Census Bureau indicates that a person with a bachelor's degree earns on average over 80 percent more than a person with only a high school diploma. The sacrifices you make to save for your college education today, pays off in an increased earnings potential in the future.
Most 529 plans have “college cost calculators” that can help you determine how much you need to save to meet your college savings goals.
What is a 529 Plan?
A Section 529 state college savings plan is a special state administered college savings program that adheres to various federal laws and the Internal Revenue Code Section 529. These plans allow investors to save money in a special account in which the earnings will grow income tax deferred and when used to pay for "qualified higher education expenses" will be federal income tax-free. In many states, a participant can receive special state incentives, including tax deductions and exemptions, based on their participation in the instate program(s).
What’s the difference between a prepaid tuition program and a savings / investment program?
Prepaid Tuition: Essentially, parents, grandparents, and other interested parties may purchase future tuition at a lower rate today then the program will pay the future college tuition of the beneficiary at any of the state’s eligible colleges or universities (or an equal payment to private and out-of-state institutions). Amounts of tuition (years or units) may be purchased through a one-time lump sum purchase or monthly installment payments. The program pools the money and makes long-range investments so that the earnings meet or exceed college tuition increases in that state.
Savings / investment Plans: Savings / investment plans allow participants to save money in a special college savings account on behalf of a designated beneficiary’s qualified higher education expenses. Contributions can vary, depending on the individual savings goals. The plans offer a variable rate of return although some programs guarantee a minimum rate of return.
Which type of plan is better?
It depends upon the investment needs and goals of the family. Each state has created innovative college savings programs individually designed to reflect the unique needs of its citizens. The plans represent affordable, flexible, and tax-advantaged options that can ensure the education of our most precious resources - the children of America. Some states are starting to offer their citizens both types of programs, giving families the option to choose the college savings vehicle that is right for them.
Who can be a beneficiary?
Anyone can be named a beneficiary of an account regardless of their relationship to the person who establishes the account. You can even establish an account with yourself as the named beneficiary. The only requirement is that the beneficiary must be a US citizen or a resident alien.
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