College: Save now, relax later
Cheryl Holland Abacus Planning Group, Inc.
|The joy of having children is accompanied by many responsibilities. One that seems to cause a great deal of concern is how to pay for college when the time comes (and it will come sooner than you imagine). There is good reason for that concern: Your child’s college tuition could be one of the largest expenditures you ever make. The best advice you can follow is to start planning right now.
Of course, the core of any college-prep plan is the commitment to save as much money as you can, as early as you can, on a set schedule. While there are many savings and investment options available, one that is worth educating yourself about before making a decision is a 529 Savings Plan.
For starters, here are a few of the basics:
A 529 Plan
A 529 Plan is an educational savings plan that works much like a 401K or IRA (investing contributions in mutual funds or similar investments) and is designed specifically to help families set aside funds for future college costs.
A major incentive is the fact that money contributed to a 529 Plan is not taxed as income when it is withdrawn to cover college expenses. To put it another way, your investment grows tax-deferred, and distributions to pay for college come out federally tax-free. In South Carolina, contributors who are state residence can deduct the contributions to the state’s 529 plan from their state income tax return. In North Carolina, contributors can deduct contributions up to $2,500 per individual or $5,000 per joint return.
There are no income limitations or age restrictions. You can start a 529 Plan no matter how much you make or how old your beneficiary is. If you remain as custodian of the account, you can redirect unused funds to other family members which makes planning for a multi-child family much simpler.
Each state has its own 529 Plan. In South Carolina, it is called the Future Scholar 529 College Savings Plan and can be initiated with a minimum investment of $250.00. You can make additional contributions for as little as $50 which can be automatically deducted from your bank account. North Carolina sponsors the National College Savings Program which boasts a minimum investment of $25 to open and add to an account.
The 529 Plans can be used to meet the costs of qualified colleges nationwide. Contrary to some perceptions, a 529 Plan is not limited to public colleges or to particular geographic regions in the country.
Of course, there is much more to know about 529 Plans than this brief tutorial can offer. A good source for digging into the details is the website www.savingforcollege.com.
A very handy (and informative) tool offered on the site is the College Calculator. Based on the age of your child and other factors, it provides an estimate of the “expected” cost of college that reflects your personal situation and parameters. Knowing how much you need to save will help you target a specific amount to set aside each month. It will give you an “end” goal to work toward.
Few opportunities have more impact on the success of a person’s life than earning a college education. Starting to save now to afford your child that advantage is simply a smart thing to do.
Cheryl R. Holland is President of Abacus Planning Group, Inc., a fee-only financial planning and investment counsel firm She is a columnist for the University of South Carolina’s Business and Economic Review and has been widely quoted in Forbes, Money, and other financial publications.
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