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Why 529 Plans Are a Smart Way to Invest for College

8/25/2015

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Although 529 plans have been available for nearly two decades, most don't understand them well.
 
What if someone offered you an opportunity to save money for your child's college education, with no
tax consequences until you withdrew the money? In addition, depending where you live, your state might also offer tax breaks and other incentives to participate.

To sweeten the pot even more, you could use the money not only for a traditional four-year degree for your child, but for vocational programs and graduate school, or even for yourself or another family member if your child does not pursue higher education.

Turns out, that investment vehicle does exist. It's the
529 college savings plan, named after the section of Internal Revenue Service code that established the plans in 1996. 

Two in three Americans could not identify a 529 as a college savings tool, yet for many, the need or desire to help their kids with college is one of their most significant priorities, from a financial perspective. 

So there is almost a disconnect. We know it's a significant need. The cost of college is increasing at a rate greater than inflation, so families are grappling with how to address this. Yet one of the most beneficial tools for doing so is unrecognized by two out of three. It's a missed opportunity, given that it is such an important need for so many families today.


For students and prospective students with time to prepare, these tax-sheltered accounts can work nicely. In recent years, many students, or their parents, have resorted mainly to borrowing to pay for college. At $1.2 trillion, student loans now rank as the second-biggest type of consumer debt, behind only mortgages.

But that also means sizable loan payments await, and not all graduates or dropouts have been able to handle their obligations. Student-loan delinquencies have been rising, and this type of debt generally can't be discharged in bankruptcy. Many borrowers undoubtedly wish they, or relatives, had started investment accounts instead.

Section-529 plans are a potential solution, at least for students, parents, grandparents or others with time to let the accounts grow for many years.




Let us help you create your college savings plan. Call us today!


 
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    Author

    Rui DaSilva is the Firm Principal & Agency Owner of RDS Financial Services, based in Hendersonville, NC. 

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