As the grandparent of a college-bound teen, do you want to know what I have learned? College is EXPENSIVE! And it's expected to just keep getting more expensive.
Fortunately, we are in a position to be able to help him with tuition so he won't have to graduate under a mountain of debt. But it would be so much easier if we would have known that his dreams of a military career would be dashed by health issues. We would have encouraged him and his parents to prepare for his college days themselves!
It's a little late for him to really start saving. But it's not too late for anyone else who may have children dreaming of college in their future. There are lots of ways to start saving money for college. One of the best is the 529 plan.
A 529 plan is like a 401k for college savings. You put money in, get a tax deduction, and allow the money to grow tax-deferred for the purpose of paying future college costs.
I am not an expert on them by any means. So before investing, I highly recommend you educate yourself so you understand them. But I will share some basic reasons why you should open one if college is in your child's future.
1. High contribution limits: 529 plan limits are set by the states. Limits vary from state to state. California currently has the highest limit. Mississippi has the lowest. But even at a $235,000 limit in Mississippi, that still makes quite a dent in a hefty college tuition bill!
2. They are tax-deferred: Your contributions and earnings grow tax-deferred. And as long as you use the money for qualified education expenses, your withdrawals will also be tax free.
3. Flexibility: Your 529 plan is not limited to paying tuition. It can also pay for books and computers. And it doesn't just cover college. You can use your 529 plan for other post-secondary qualified training.
4. It's easy to invest: Most 529 plans make it very easy to invest. They are professionally managed so they have choices like pre-set asset allocation models and age-based options. So if you're not an expert on investing, no worries! Let the professionals handle your allocation and use the age-based model to lower your risk.
5. No tax reporting - if you use your 529 plan for qualified expenses: This definitely makes your life easier at tax time. There are times when you will have to report such as if your withdrawals exceed your qualified education expenses.
If you have a college-bound kid, you definitely want to invest in a 529 plan. With college costs rising annually, it can be challenging to know how much you will need. But if college is on the horizon, any amount you can start investing in a 529 plan can only help.
