Responsive Ad Slot

Popular Posts

Latest Posts

Resources

The Best Way To Save For College Is A 529 Plan

Apr 10, 2019

Are you going to start a family. In the process of getting the babies nursery ready, lining up maternity leave, figuring out childcare plans, as well as making decisions relating to the birth itself, there's something else you need to be thinking of. Just how do you intend on saving for college?

According to George Ihnot, President of Family Financial Advisers, the correct time for folks to plan for college cost savings is "immediately or as early as practical-- even right after your kid is born."

"Investing for college is the hardest type of investing, given that you have a short time span and a certain draw period," Ihnot says. "It's not like retiring, where you can adjust it. If you're not prepared for retired life, you can wait. You do not have that luxury with college."

Now that you know you're require to start right away, how much do you need to set aside?




"The rising price of university in times past has actually been well in excess of normal inflation, typically 6-7%," Ihnot says.

He suggests that you take the present cost of an exclusive 4-year college and multiply it by 5. That's the amount of cash you'll wish to have on hand. Since you understand just how much you need, the question is, what's the best type of account in which to save it?

A 529 Plan Can Help You Save For College


Depending on the state in which you reside, a 529 College Savings Plan is likely going to be your best option for tax-incentive college savings. Ihnot says that you can think of these accounts like Roth IRAs. As your kid nears matriculation, you can start to move assets from more volatile assets, like equities (stocks), to more stable assets, like bonds.

Some states grant tax breaks on contributions to 529 plans and others do not. A couple of states will even allow you take a tax deduction even if you contribute to another state's 529 plan. If you happen to live in a state without income tax or someplace that does not have a 529 plan, you still have alternatives.

"It does not matter what state you reside in, you can put money in every state's 529 plan," Ihnot claims. "And it does not matter what state you save into. You can send your kid to college and university in any state. The general guideline is that if your state charges income tax and there is an advantage for a contributing to a 529 plan, then you're better off contributing to your state's 529 plan."

"the correct time for folks to plan for college cost savings is "immediately or as early as practical-- even right after your kid is born.", George Ihnot, President of Family Financial Advisers

529 plans provide parents who are saving for college and university the benefits of tax-deferred growth and tax-free spending for Qualified Higher Education Expenses (QHEE). Some K-12 tuition is also considered QHEE. A word of caution: Colleges and universities must be accredited so as for tuition to be considered QHEE.

Even More Reasons to Use a 529 Plan


The majority of 529 plans come with a balance limit that varies from one state to another. Normally, it's around $250,000, Ihnot claims.

529 plans also provide you extra property protection in situations such as bankruptcy or a lawsuits.

"In many cases, there's a greater degree of asset protection than an individual or a joint account," Ihnot claims. "There's a public interest in your children being educated."

There's also a great deal of misinformation encompassing the amount that parents can contribute the 529 plans. Many believe that the contributions comprise gifts in the eyes of the IRS and are as a result capped at $12,000. This, however is not the case. Ihnot explains that each parent can contribute as much as $15,000 per kid annually, and more with some additional paperwork.


1 comment

  1. Why can't you just save in a regular savings account?

    ReplyDelete

More Resources

Our Sponsors

Blog Archive