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Educate Yourself About Saving for College with a 529 Plan

Educate Yourself About Saving for College with a 529 Plan

July 11, 2021

Preparing your children to be independent adults and contributing members of society is one of life’s most challenging tasks. It goes beyond teaching good manners, personal responsibility, and respect for others.

Our One Financial Services team understands it’s also important to provide our children with the best possible education to help ensure their future.

Studies show that someone graduating with a bachelor’s degree will earn 67% more than a high school graduate and experience lower unemployment. But at what cost?

In 2019-2020, the average cost of a year at an in-state public university was approximately $21,950, while a year of private school was more than $49,870. If you’re a family with multiple children, affording all those tuition payments is no small feat.

You may feel you can’t afford to save right now, but think about the future: The average graduate leaves college with $29,900 of debt. Is that a burden you want your children to have?

A hypothetical investment of $100 per month for 18 years in a tax-free account, with an average return of 6% per year, would have grown to $38,929, assuming no withdrawals were taken. By you implementing that $100 a month savings plan you could relieve them of that debt. Doing so in a 529 plan can offer you an advantage over taxable accounts.

And with a 529 plan, saving for college can be a family affair where not only parents but grandparents, godparents, and other family and friends may contribute. Opening a 529 college savings account allows everyone to pitch in, yet control always remains with the account owner.

Should grandparents be in a position to do so, they may contribute larger gifts, which may also have estate planning benefits for them. Those seeking to transfer assets out of their estates can contribute up to $15,000 ($30,000 for married couples) annually toward a loved one’s college education without gift-tax consequences. Under a special election, grandparents can invest up to $75,000 ($150,000 for married couples) at one time by accelerating five years’ worth of investments. For gift-tax purposes, the assets are considered completed gifts, but the grandparents — provided they own the accounts — control the assets and the withdrawals.

Your children are your most precious asset. Your One Financial Services advisor can provide you with the information to help you make an informed decision about how best to save for their future education.

Prior to investing in 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.