Even as the economy stumbles, the price of a college education keeps on climbing. Average tuition and fees at public four-year colleges and universities rose 6.4% in the 2008–09 academic year, while costs at private four-year institutions rose 5.9%.
Higher college costs and trying economic conditions have interrupted the education plans of many aspiring students. In a recent survey, 57% of high-school seniors lamented that they were considering less prestigious and less expensive college options, and 16% were putting their searches on hold because they didn’t think their families could afford to foot the bill.
It’s likely that admission to the nation’s top colleges and universities will remain competitive, but adequate college savings can help ensure that a student’s opportunity to attend his or her school of choice is not compromised by the lack of resources. Fortunately, Section 529 plans are designed to help families save for future higher-education costs.
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With a 529 savings plan, investment earnings accumulate on a tax-deferred basis. Contributions and earnings can be withdrawn tax-free if they are spent on qualified higher-education expenses such as tuition, fees, room and board, books, and other school supplies.
Family members can contribute up to $13,000 ($26,000 for married couples) to a 529 plan each year per student without triggering gift taxes, and there are no donor income limits. Contributions up to $65,000 ($130,000 for married couples) are also allowed in a single year as long as no other gifts are given to the student by the same contributor(s) for five years.
As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also a risk that the plan investments may lose money or not perform well enough to cover college costs as anticipated.
The tax implications of a 529 plan should be discussed with your legal and tax advisors because the plans can vary significantly from state to state. Also note that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.
Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.
The average debt for college graduates who borrowed money for college has reached $22,700, with many owing much more. For parents who worry about the financial future of their children, it can be worth the investment to support worthy students in their pursuit of a higher education.
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