The cost of tuition, textbooks, transportation and supplies are all at an all-time high. It’s no wonder parents are adding 529 college savings plans to their financial strategies. Data from the College Savings Plan Network show there are roughly 12 million 529 accounts, with an aggregate value of $250 billion, an average account size of $21,000. Why Save for College? Maybe you’re expecting your child to pay for his or her own college. For a student with limited time to work off loans, that may not be the ideal plan. According to College Board, the average yearly cost for tuition and fees at a public college for in-state residents is more than $9,000. For out-of-state residents, that average cost jumps to nearly $23,000. These figures underscore the importance of having a solid plan in place for handling college costs. How 529 Plans Work You can start a portfolio in a 529 plan by picking one based on your child’s age or the year the money will be needed. The portfolio moves gradually to less risky investments as the draw date gets closer. Just like traditional investing, this allows you to build the portfolio aggressively at the beginning of its lifespan and then back off when it’s time to put it to work for you. Earnings and interest on the money grow tax-free in 529 plans, although contributions are not tax deductible on federal tax returns. Distributions of the funds are tax exempt as long as the beneficiary uses the money for college-related expenses. Check with your financial planner for other details of 529 plans and how you can adjust them as the years pass. Static or Aggressive Portfolio? Most 529 plans offer a choice between static and aggressive portfolios. Static portfolios mean that the allocation in them does not change. Aggressive portfolios are focused mainly on stocks. In most cases, changes to a 529 account can only be made twice a year. That means you cannot suddenly react to market conditions without taking into account your limit on changes. Keeping a close relationship with your financial planner will help you make the smartest decisions on your plan.
529 College Savings Plans