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
- 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.
- 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!
The opinions are those of the writer, and not the recommendations or responsibility of Cetera Advisor Networks LLC or its representatives. An investor should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. More information is available in the issuer’s official statement which can be obtained from your financial professional. The official statement should be read carefully before investing. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers. The investments inside a 529 plan may fluctuate with changes in market conditions. When redeemed the shares may be worth more or less than their original value.
