What’s up Wednesday!
因为今天是5号.29.24 I thought it would be appropriate to share my philosophy about college education funding, the various options you could use to meet your goals and why using multiple sources could be the best option. When my husband and I became new parents, ourselves we wanted to start saving for their future. One thing a parent should consider first is, are you taking care of your own future? My thoughts are this, you can fund an education thru loans, scholarships and working but you can’t fund your retirement the same way so first things first, make sure you are utilizing your company retirement plans to the fullest, make sure you have your emergency funds set aside then work on saving for your children’s education. There are multiple ways you can save for higher education; notice I didn’t say college education. I truly believe not every child is well suited for a four-year college education. I’ve met some young adults that have unbelievable mechanical aptitude but could care less about sitting in English Literature class and rightfully so, what does English Literature or Political Science have to do with welding, 管道, or analyzing instruments, 没有什么.
There are multiply ways we like to recommend saving for higher education, the 529 plan is one of them because it can also be used for trade school education, the other is a prepaid tuition plan. Each of these plans work different so let’s explore each of them.
What is a 529 Plan?
A 529 plan is a tax advantage savings plan designed to help families save for higher education expenses. The name comes from Section 529 of the Internal Revenue Code, which created the tax benefits for these plans. The dollars you set aside in this plan are earmarked for higher education, you contribute after tax dollars, it grows tax deferred in this account and as long as you use it for qualified education expenses such as tuition, 费用, 书, 供应, and room and board at eligible college you do not have to pay tax on the growth. 通常, a parent or grandparent is the owner of the account, and the child is the beneficiary therefore this account would not disqualify a child from needs-based scholarships. And if your child was lucky enough to get a scholarship of some kind, athletic, education etc. they could still use this account to supplement any differences or go even further with their education such as a master’s degree. 529 plans are state specific so if you live in a state that collects state income tax you would get some additional tax benefits for contributing to your state fund.
What are Prepaid Tuition Plans?
Prepaid tuition plans are a form of 529 plan that locks in the cost of tuition today for future use at eligible institutions. You can choose from junior college, a four-year school or even a private school but the one thing you need to consider is where do you think your child will attend school? If you think they will go to a school in Texas, then the Texas Promise fund is for you. If you think they will go to a school in another state, you need to explore prepaid plans for that state. The good thing is if you choose the Texas Promise fund and your child ends up going to another state, you can have your funds transferred but you lose the locked in rate of tuition.
I believe a combination of the two plans above would be a good start if you are looking for options to save for your child’s future education. The cool thing is each child only needs one account because anyone can contribute to the account for them.
*Prior to investing in a 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, 奖学金基金, 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.