Your college savings strategy does not need to alter just because COVID-19 has transformed the way college appears these days.
Tuition costs continue to grow, regardless of whether students are returning to the classroom or attending online classes this fall. For many of our customers, saving for their children’s education is a key priority. If you’re looking for a way to handle these fees and yet meet your retirement objectives, Foran Financial Group can assist. Despite the fact that we receive a lot of queries on how to save for these costs, there are some fresh ones.
- What impact will the epidemic have on my long-term plans to save for my children’s college expenses?
- Is this money secure?
- What am I supposed to do?
So long as you can afford to keep up with your children’s college savings contributions, you should do so. It’s okay if you have to cut down on your college savings. Even if you have to take a break from contributing for a while, don’t forget to get back into the swing of things when you can.
Here is a simple description of how a 529 plan may be used to save for college tuition and keep the money out of taxes and other expenses.
What are 529 plans?
Specifically intended to be used for higher education costs, a 529 plan is tax-advantaged savings account for individuals. Everyone, regardless of age, is eligible to create a 529 account and to serve as a beneficiary. There is no transfer of cash unless the money is withdrawn by a beneficiary from the account. In order to avoid federal income taxes and a 10% penalty, as well as any state and local taxes, withdrawals may be made at any time, but the money must be utilized for approved educational expenditures.
This is where the term “529 plan” originates from. All 50 states and the District of Columbia are covered by them. 529 accounts grow tax-deferred, and there are no yearly restrictions on how much money you may donate.
It used to be that you couldn’t utilize money from a 529 plan for anything other than the specified beneficiary’s higher education costs without triggering taxes and penalties. A recent change in 529 account rules has resulted in an increase in the number of options available to investors.
529 funds, for example, may now be used to cover the cost of training at trade schools and technical institutes. A 529 account may also be dedicated to a different kid in the event that a child’s college plans change and he or she doesn’t utilise all of the money.
529 accounts may also be used to pay for K-12 schooling, student loans, apprenticeship programmes, and other educational costs.
Non-school-related withdrawals from a 529 plan are subject to federal income tax and a 10% penalty, so they should only be used as a last-ditch option. Determine whether or not removing money from a 529 plan is definitely essential.
Mistakes in money management may be quite costly. See whether Foran Financial Group may be of assistance by contacting us.
The Best Ways to Save Money for College
College costs a lot of money. It’s second only to the cost of a home to be the most expensive purchase you’ll ever make. College costs varied from $17,797 to $46,041, on average, for a single year in 2018. At the very least, double it by at least four years, and then double or quadruple (and so forth) depending on the number of children you have, and those figures may be astounding. However, anybody may save enough money over time and with careful planning to help cover the expenses of sending a kid to college. The key is to have a strategy in place and to begin saving as early as possible.
Talk to a financial adviser first if you don’t have a sound retirement plan or a lot of consumer debt. Remember that you may borrow money for education, but not for retirement.
Instead of sending presents, some families ask their loved ones to make contributions to a 529 plan in the name of their children. (As an extra advantage for parents, you may be able to lower your state income tax burden by depositing these gifts into the 529 plan!)
Start saving for your child’s college education as soon as you can. The sooner you begin saving, the less money you’ll have to put away each month.
Think about saving $400 a month when your kid is born, for example. To prepare for your child’s 18th birthday, you’d need to start saving at the age of 6, which would cost you around $900 a month. Waiting until your kid is 12 will need monthly savings of almost $2,000 or more.
Even if education fees are high, don’t allow yourself to become weighed down by the financial burden. It’s better to save something than nothing, and a 529 investing account has the ability to grow your savings, no matter how little the initial commitment.
If you’re not sure where to begin, have questions, or need assistance setting up a 529 plan, give Foran Financial Group a call.
LPL Financial is a registered investment adviser and a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corp.
Foran Financial Group’s financial experts are only permitted to do business with residents of the states in which they are fully registered or licensed to do so. Any offers or acceptances from residents of other states are prohibited.