Saving for college from a young age isn't just a "good idea" anymore, it's a necessity. Tuition and fees have been rising year after year at rates higher than inflation and while the economy remains a challenge, there are ways to get started on saving up for college expenses. This week, we're asking the network about one of those ways, 529 plans:
Q: What is a 529 plan and how do you set one up?
A: Consider all of your options before leaping into a 529 plan.
Don Fraser Jr., director of education and training, National Association for College Admission Counseling (NACAC)
The rising cost of college is a scary prospect for the overwhelming majority of today's college students and families, particularly if you are considering attending a 4-year public or private college where the average tuition and fees for a year are approximately $6,300 and $22,000, respectively. One of the many ways in which families can save money is through a 529 plan that allows (in most cases) tax-free financial contributions to the plan with the goal of using the funds to pay their child's college tuition.
[See 4 overlooked ways to pay for college.]
529 plans are available in every state as well as in Washington, D.C. and can vary considerably (e.g., how you choose to contribute, the kinds of investments you make, etc.), so see what is available to you and decide what works best for your family. It is important to shop around, though, and if you are not familiar with making financial investments, then you should talk to a reputable professional who could help you make sense of the sea of options. Some colleges even offer their own versions of a 529 plan, so if you have a particular college in mind, you could check to see if they participate. It's never too early or too late to consider a 529 plan.
A: Every state offers some kind of college savings plan.
John Carpenter, author, Going Geek: What Every Smart Kid (and Every Smart Parent) Should Know About College Admissions
529s are great plans to help families save money for college, and they carry a number of different tax benefits, depending on the state you live in. They are especially good for parents because parents have total control over when to take out the money and whom to give it to. Students can open their own 529s, but the benefits are slightly offset by the way your financial aid package is calculated. Remember that student assets are always used at a higher rate than parent assets when it comes to figuring out financial aid.
[Get more advice in U.S. News's Paying for College guide.]
Another thing to know is that to get the best benefit of a 529 plan, it should be opened when you're young—even a baby! Plans that don't begin to accumulate before your senior year won't be that helpful to your overall financial situation. To open one, contact a financial adviser or see someone at your bank. Then talk to a financial aid officer at any of the colleges you're considering to see exactly how your plan will affect you at that particular school.
A: Saving for college is a great thing… and the best way to preserve options!
Nancy Meislahn, dean of admissions and financial aid, Wesleyan University
Anyone can set up a 529 plan and name anyone as a beneficiary. Online, www.savingforcollege.com is a reliable place to compare the different state plans or look for more information from your state. You might get a better state tax break if you invest in your own state's plan.
[Learn more about 529 plans vs. Roth IRAs.]
Visit the Unigo Expert Network for 10 more experts explaining the 529 plan, how to use it to your advantage, and to have your own questions answered. Follow Unigo on Twitter and join the college admissions discussion: @Unigo