According to the Bureau of Labor Statistics, about 66 percent of students enroll in college after high school graduation, implying that your children are likely to go to college. Since the costs of higher learning keep rising, you may feel like you will never be caught up with the continuing increases in college expenses.
Saving for your children’s education is an important step in securing their future. There are many ways and plans to save, and this article will discuss the 529 College Savings Plan.
A 529 college savings plan is a state offered investment plan that helps you put money aside for future college expenses at qualified institutions. This plan can be opened in any state and used for any applicable university, regardless of its location. There are two types of 529 plans- a savings plan and a prepaid plan.
Prepaid 529 Plan
The 529 prepaid plan is issued by the state’s government and allows you to purchase shares toward your child’s education. You can choose how big your shares would be, but the value would never decrease; it only rises with the cost of tuition. For instance, if you buy shares worth the full cost of tuition, should that cost increase, your share will still hold the same value.
Much like buying a phone, with the prepaid plan comes the option to go prepaid or on contract. On prepaid, you buy your shares ahead of time, agreeing to purchase a certain amount of share each year, according to your child’s age. Overall, a prepaid 529 plan is advantageous because it allows parents to pay the current price of education expenses, versus the inevitable increased cost in the future.
A 529 savings plan is a tax-free investment plan that is dependent on the market, and for that reason it is similar to a 401k. This plan starts with more intense saving at first. As your child gets older, the amount you are required to save will decrease. However, if your child does not go to college he or she will not be able to obtain the funds.
The savings plan does not offer as much protection as the prepaid plans, but it will not greatly affect your chances of getting financial aid to help cover expenses. The plan also allows you the chance to grow your investment over time. For that reason, it is a considerable option.
Assuming that your child will attend a university or community college, it is never too early to start investing on their behalf. Considering a 529 plan will be beneficial for your family and will provide you peace of mind. Saving as early as possible is a step that can help eliminate some of that financial stress later on.