Do You Know What a 529 Plan Is?

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Published By Taylor Financial Group

Only 29% of Americans in a recent survey identified a 529 plan as an education savings tool. That means many people may be missing out on a great tax-free benefit. The survey results came from 1,004 interviews of U.S. adults conducted in April by ORC International’s CARAVAN Omnibus Services. Many factors, such as a respondent’s age, influenced her awareness of 529 plans. For example, 35% of Gen Xers correctly identified 529s, compared with only 27% of millennials.

So, how are Americans saving for education?

The survey results showed that 43% of participants used, or planned to use, their personal savings to pay for higher education. Thirty-three percent said they would depend on scholarships, 31% on federal or state financial aid and 20% on private student loans. 529 plans placed last at 13%.

The survey uncovered some upsetting findings about how much individuals are saving (or not saving) for college. As education costs continue to rise, beginning to save early on with a mix of strategies is vital to ensuring you’re prepared to handle these expenses without it taking a toll on other aspects of your financial life, such as preparing for retirement.

 

Tips to Help You Maximize the Benefits of a 529 Plan

  1. Fund away

While it is never too late to start a college-savings plan, try to fund your 529 account to the maximum that you are able to as quickly as you can after a child is born. Or at least put aside a doable amount regularly.

According to the College Savings Plans Network, the average 529 account size nationally is $20,934. Depending on the state, contribution limits typically won’t affect you unless you’re fortunate enough to hit $300,000 to $452,000.

If possible, take advantage of a provision that allows a parent or grandparent to make five years’ worth of allowable contributions to a 529 all at once, using up their gift-tax reporting exemption for those years. The gift-tax exemption is $15,000 per beneficiary a year, meaning you could prefund a 529 up to $75,000 in one year.

  1. Go automated

Many 529 plans are set up to make payments to universities directly, online. With a few clicks, the 529 assets that you choose to use that year are sent directly to the school. It is also smart to automate your 529 contributions. The automatic-contribution feature that many plans have will pull money from your paycheck or checking account regularly. Even $50 a month will add up.

The bottom line is that 529 Plans can be a great tool, so take the time to learn about them!

 

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