For most of us, saving for college can feel a lot like trying to climb a slippery slope. Fortunately, you can help offset the educational sticker shock by starting a 529 college fund for your child. Of course, to help maximize your savings, you probably have realized that the sooner you start, the better. But did you know that there are ways to get more out of your college savings fund? The following are considerations that are worth looking into as you are starting your college fund:
- Check for state tax breaks
In addition to the federal tax savings, 34 states including the District of Columbia, currently offer state residents a full or partial tax deduction or credit for 529 plan contributions. It is advisable to research all of your options when it comes to state tax breaks to find out what benefits might be available.
- Decide how you want to invest
Depending on the plan you select, you may be able to decide what kind of asset allocation you want. For example, you might want to invest only in CDs. Whatever you choose, your decision should depend on your tolerance for market volatility and the number of years before your child heads off to college. Discuss your options with a financial professional.
- Be wary of fees
Most 529 plans pass along the costs of administration to account owners through fees and other expenses. Not only do these fees vary from state to state, but some plans charge more than others and for many different things. Before deciding on a plan, know what the costs are. A plan that charges an exorbitant amount of fees can take a big bite out of your return.
- Factor in financial aid
Many people are unaware that assets held in a 529 plan can count against students who are seeking financial aid. That could result in receiving less assistance at a time when students may need it the most.
Nearly every state has a 529 plan; a few offer more than one. From investment options to contribution limits, tax benefits and more, plans can greatly differ. Before starting a college fund, be sure and do your homework and compare 529 plans so that you get the most for your money.
For more information on 529 college savings plans, as well as tips on saving for college, visit the Protective Learning Center.
NOTE: As of 2018, the IRS has amended the term “qualified higher education expense” to include a limited amount of annual expenses from a 529 Plan for tuition at an elementary or secondary public, private, or religious school.