Shopping Back-To-School Sales?
If You Are Back-to-school Shopping, Get Smart And Shop College Savings Plans, Too.
The back-to-school sales have already started (can you believe it?), which means the end of the summer will soon here. But along with the pens, pencils, notebooks, and other things you’ll need for your children, now’s the time to also think about beefing up your 529 savings plan or starting one if haven’t already.
What is a 529?
According to the SEC:
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
The back-to-school season is the perfect time to shop around for a good 529 plan. Why? 529 plans are designed to be long-term savings, which means its always better to start sooner rather than later.
There are two types of 529 plans—prepaid tuition and college savings plans. Prepaid tuition plans help you lock-in the cost of college by buying credits at participating institutions. College savings plans are more like investment accounts that you contribute to regularly. Which one you prefer really depends on your savings style and risk tolerance, and whether or not you know which school your child or children will be attending. Additionally, there are often fees involved with each, which may impact your decision.
There are tax advantages for each plan, as well. Earnings are not taxed at the federal level, and depending on which plan you buy, there may be state tax benefits as well. But, it’s important to be aware that you can also be penalized if you do not use the funds for eligible college expenses.
Another great aspect of college savings plans is that they are transferable. That means that you can change beneficiaries without any costs or penalties. If one child doesn’t go to school, you can always transfer it to a sibling, or you can even save it for a grandchild. As long as you use the money for eligible expenses, you’ll always be able to spend it tax-free.
What’s included in eligible college expenses? Typically, it’s all the expenses associated with attending college: tuition, room and board, fees, books, etc. However, it’s important to note that some pre-paid savings plans don’t necessarily cover all expenses.
To learn more about saving for your children’s college expenses, contact us.
Since 1984, WeberMessick has been helping clients answer their toughest financial questions. A properly structured financial plan helps you face the financial challenges that may be present at any stage of life. Through our planning process, we can help you assess your financial needs and develop strategies to set you on the path to the future you want.