529 Facts

Written by Jim Miller

Helping to save for your grandchildren’s college education is like saving for retirement. Time, not timing, is the key!
And a savvy tool to help you save is the 529 Plan. Here’s what you should know:

Cost increases

A grandchild born in today’s world and enrolling in college 18 years from now will face huge expenses. In the last couple of years, many colleges have seen costs climb by more than 20 percent. Nationwide, the average is closer to 10 percent the last two years. But, being optimistic and using an inflation rate of five percent, a public university that now charges $9,000 a year for tuition, fees, books and room and board will cost nearly $90,000 (US) for four years when it comes time for that newborn to enroll there. And that $9,000 estimate is on the low end of college costs today.

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The sad truth is that many middle class and even upper-middle-class parents won’t be able to save the kind of money it will take to pay for college 18 years from now, nor will children and grandchildren be able to work their way through school. They are going to need some help and the 529 Plan is a great option.

529 facts

A 529 Plan is a state-sponsored college savings plan that helps families save for future college costs. Available in every state, 529 Plans can help grandparents like yourself contribute to their grandchildren’s college education in an easy, tax-free way. Here are some of the advantages.

You get unsurpassed tax breaks for contributions. Your investment grows tax-free as long as your money stays in the 529 Plan. And when you withdraw money from your plan to pay for college, the money is federally tax-free as well.

You, the donor, stay in control of the account. With few exceptions, the named beneficiary has no rights to the funds. In other words, you don’t need to worry that your 18-year old granddaughter will cash in her college fund and run off to Mexico to marry some kid in a rock band. You call the shots!

The 529 Plan is easy! Once you decide which 529 Plan to use, you complete a simple enrollment form and make your contributions or sign up for automatic deposits.

Everyone is eligible to take advantage of a529 Plan. Generally there are no income restrictions or age limitations.

Many states also offer multiple 529 investment options, from high risk to conservative, and as the child ages, the money can be moved to more conservative funds for safekeeping.

Just because you save money under a specific state’s program doesn’t mean the beneficiary of the account is necessarily required to go to school in that state. Check with your state to make sure there are no limits.

If you grandchild doesn’t go to college, you’ll have to pay a 10 percent penalty on the earnings. Which means that you will get back 100 percent of your principal and 90 percent of your earnings.

For complete information on state-sponsored 529 Plans, see these websites:

SavingforCollege.com: A comprehensive website offering valuable information on the 529 Plans.
The College Savings Plans Network: Intended to make higher education more attainable, the Network serves as a clearinghouse for information among existing college savings programs.