National College Savings Day!
5/29/23 - Did you know that May 29th is considered National College Savings Day? It is a day that was introduced to increase awareness of college savings plans such as 529s and to encourage families to start saving early towards future expenses for education.
The average cost of college* in the United States is $35,551 per student per year. When all factors such as housing, books, interest and school selection are considered, the ultimate cost of a bachelor’s degree can easily exceed $500,000!
At Covenant Wealth Strategies, we can help you and your family with education planning, along with saving on and for the cost of college by discussing a variety of strategies, including the use of 529 Plans and other tax-favored strategies.
We've compiled a list of common 529 Plan questions below.
Why are 529 Plans a good option?
529 Plans allow you to increase savings for a child's/grandchild's education expenses. A benefit of using a 529 Plan is that it provides tax-deferred growth and tax-free withdrawals. In addition to the benefit of potential compounded growth, it also gives contributors control over the assets, so children can’t use the funds for a purpose other than education.
What types of education can 529 Plans fund?
While 529 Plans can be used for four-year colleges, they can also be used to cover the costs of vocational school, community college, some foreign institutions, and even qualified kindergarten through 12th grade tuition.
Who can fund a 529 Plan?
Anyone! Common contributors include parents, grandparents, or other relatives. However, really anyone who wants to support a loved one’s future education can open and fund a 529 Plan. In 2023, individuals can contribute up to $17,000 per beneficiary (a married couple can contribute up to $34,000) without using any of their lifetime gift tax exemption.
What happens if the child ends up not needing the funds?
If the child doesn’t need the funds anymore – say they get a scholarship, or decide not to go to college – the 529 Plan can flex to fit their needs. You can typically transfer the money to another eligible family member without tax consequences. Plus, you can use the funds for other education-related expenses – not just tuition. So if the child receives a grant or other financial aid that covers most or all of tuition, you can apply the 529 funds to other expenses, including:
- Fees, books, supplies and equipment
- Room and board for beneficiaries attending on at least a half-time basis
- Computer technology, equipment, and internet access
- Apprenticeship expenses
- Up to $10,000 for student loan repayment
If college might be in the future plans for your child or grandchild, we encourage you to watch our video replay from our Getting, Saving and Losing Money for College virtual event and Contact Us so we can help you prepare for the future and design "Strategies for Your Success".
*In this context, college refers to any 4-year postsecondary institution that offers an undergraduate degree program; this is the average cost to first-time, full-time undergraduates.
Source: https://educationdata.org/average-cost-of-college
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, 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.