LISTEN, BABY
Put away $ for kids’ college in 529 plan
IF YOU’VE got little kids, chances are you’re not focused on those young adults proudly dressed in caps and gowns at graduation ceremonies across the country.
Maybe you should be: Soon enough, your little one will be grown up and heading for college. But how will you pay for it? If you’re smart, you’ll start thinking now about a 529 college savings plan.
These tax-advantaged saving vehicles, operated by individual states, help families set aside money for future college tuition and other related expenses.
Consider them your alternative to saddling your child with student loans.
It’s rough out there. Tuition is rising faster than inflation and the average college grad leaves school with $28,400 in debt.
“For every dollar a family saves, it could mean up to $2 you would have had to pay back by the time you repaid a student loan,” Betty Lochner, chair of the College Savings Plan Network, a group whose members include 529 plan administrators, told the Daily News.
So get wise for your kid’s sake. Here are some things to keep in mind about 529 plans:
They come in two types.
There are college savings plans and prepaid tuition plans.
With prepaid plans, you “prepurchase” a student’s future tuition based on today’s rates.
In contrast, 529 savings plans are like retirement accounts. Your money gets invested in mutual funds and you’re typically offered various investment options.
Earnings in these plans grow taxdeferred and withdrawals are free of federal income tax, so long as the money is used for qualified education expenses.
You might get a state tax benefit, too.
Some states allow you to deduct your contributions.
If you’re a New York State taxpayer and account holder, you might be entitled to a state income tax deduction of up to $5,000 ($10,000 for married couples filing jointly).
529 plans are not just for rich folks.
“In fact, you can make contributions of as low as $25 a month and still get federal tax benefits,” Kathryn Flynn, content director at Savingforcollege. com, told The News.
You’ve got options.
You don’t have to choose your own state’s plan, though you should consider your home state’s tax benefits. “Start with your own state plan and compare it to other states,” Flynn said. “We have a plan comparison tool on our website.”
You’re not limited to in-state schools.
Savings in 529 college savings accounts can be used at most colleges and universities across the country.