National College Savings Day!
Did you know that May 29th is recognized as National College Savings Day? This day was designated to highlight the importance of early financial planning for education through mechanisms like 529 plans. It's a call to action for families to begin setting aside funds now, to ease the burden of future educational expenses. This initiative aims to promote financial readiness and underscore the benefits of investing in a student's academic journey from an early stage.
The average cost of college* in the United States is approximately $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! Here are several other astonishing data points.
Across all types of schools, the cost of college has increased more than 135% between 1963 and 2021.
Attending a four-year public college costs 57% more than it did 20 years ago.
In comparing the 2022-2023 and 2023-2024 academic years, tuition rates at private National Universities increased by about 5%.
It is easy to understand why our team at Covenant Wealth Strategies prioritizes helping families prepare by providing education planning through a variety of tax-favored strategies. Additionally, we seek to provide strategies to also save on the cost of college.
If you are wondering if a 529 could fit your planning needs, 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 2024, individuals can contribute up to $18,000 per beneficiary (a married couple can contribute up to $36,000) 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 check out our College Planning Resource Page, 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.
Average undergraduate tuition, fees, room, and board rates charged for full-time students in degree-granting postsecondary institutions, by level and control of institution: Selected years, 1963-64 through 2020-21. NCES. January 2022.
Sources:
https://educationdata.org/average-cost-of-college
https://www.bestcolleges.com/research/college-costs-over-time/
https://www.usnews.com/education/best-colleges/paying-for-college/articles/see-20-years-of-tuition-growth-at-national-universities
https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 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.