Many parents today suffer from sticker shock when they learn what it costs to send their children to college. According to collegeboard.org, the average estimated undergraduate budge for 2017-2018 is $25,290.00. One year, over $25,000.00.
While the cost of college can be a hard pill to swallow for parents of college-bound teens, now is the time for parents to get familiar with a 529 College Savings Plan. The commonly used college savings plan has offered parents, and their college-bound kid(s), tax-free withdrawals to pay for college.
529 plans allow an individual to save for higher education expenses for a determined beneficiary. Anyone can establish a 529 plan for a designated beneficiary. Money invested into the plan accumulates on a tax-deferred basis and distributions used for higher education expenses are tax and penalty-free, as long as the funds are sued for approved education expenses.
Saving for college can also have added tax benefits, and a tax professional can help better explain these as they vary from state to state.
If you are considering establishing a trust for your child to pay for college instead, here are some additional things to consider:
- Most trust funds may not be effective means of sheltering this cash from the financial aid process — if your child will be applying for aid, trust funds can be counted in the financial aid process as an asset of the child. This could affect your child’s eligibility for aid.
Be sure to work with a financial professional before investing in a 529 Plan to understand eligibility requirements. Some plans will only allow savings to be used to pay for college in that designated state.
Securities offered through First Allied Securities, Inc. Member FINRA/SIPC. Advisory services offered through Lakeside Wealth Management Group LLC, a registered investment advisor not affiliated with First Allied Securities Inc.
Prior to investing in a 529 Plan, investors should consider whether the investor's or the designated beneficiary's home state offers any state tax or other benefits that are only available in investments in such state's qualified tuition program. Withdrawals used for qualified expenses are generally tax free. Nonqualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings. Tax treatment at the state level may vary.