If you think that college is expensive today, fast forward to 2030 when costs may eclipse the current value of your home. Tuition and related college expenses are rising at a rate of about 6 percent annually, far above the rate of inflation. This means you should start saving for college now to have enough funds when needed.
Your state has made it easy for families to save money for college by establishing 529 college savings plans designed to encourage you to save money for college.1 All 50 states and the District of Columbia offer at least one plan and you can join plans based in other states if you prefer. Use these funds for college and they’re exempt from federal taxes. Some states offer tax breaks for your contributions.
Opening a 529 account is simple, a three step process that includes researching your options:
1. Explore state plans — You may want to join a plan offered in your state, but you aren’t required to do so. You may find a better investment elsewhere, something you can determine by visiting collegesavings.org and comparing plans in its searchable database.
2. Make contact — Once you find a plan that is right for you, contact the company administering the plan for more information. Those details can be found via its website, by telephone, or by mail following your request for documentation.
3. Enroll and fund — Follow the company’s guidelines for opening a new account, by providing parental contact information and Social Security numbers and similar information about your child. This means if your newborn doesn’t have a Social Security number yet, you’ll need to obtain one before applying. Once your account is set up you can make deposits including automatic withdrawals from your checking account to the college fund.
Many of the 529 college savings plans have contribution limits in excess of $200,000, which allows families to anticipate saving for the most expensive schools in today’s dollars. There are no age limits for such plans which means if you or your spouse would like to return to college someday, you can fund that cost now through your own plan.
You can ask other family members to contribute to your child’s 529 college savings plan, a favorite option for many grandparents who want to leave an educational legacy to their grandchildren.2
References
1 Securities and Exchange Commission: An Introduction to 529 Plans
2 USA Today; College 529 Plan Could Make a Great Gift for Grandkids; Sandra Block; November 12, 2007
Photo: Wikipedia.org
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