Published on September 19, 2019
Written by The Servion Financial Advisors Team
September is College Savings Month, an appropriate time to think about education costs and how the average person can prepare to send their kid(s) off to the university of their choice without burying themselves in mountains of debt.
In this post, we'll talk about how 529 plans can help, but first let's start with a broad picture of the student loan landscape.
According to the U.S. Federal Reserve and the Federal Reserve Bank of New York:
Among those who graduated in 2018:
College Savings Month is a great time for parents to get familiar with a 529 College Savings Plan. The commonly used college savings plan offers parents, and their college-bound kid(s), tax-free withdrawals to pay for college.
Here’s what you need to know about a 529 College Savings Plan:
That last point is the key. The tax benefits of 529 Plans are only applicable if the funds are used to pay for approved education expenses. There are nuances to these plans in different states, so talk to your financial advisor before opening an account.
529 Plans have to be used cover qualified expenses. There are actually many applications for the funds in these plans. You can use them to pay for undergraduate or graduate tuition, trade or tech schools, cooking schools, and some accredited schools abroad. Funds can also be used for room and board, books and other fees.
Some parents consider creating a trust for college expenses. But be aware that trust funds may not be an effective way to shelter money from the financial aid process, which is concern if your student will apply for such aid. Trust funds can be counted as assets during the financial aid process, affecting your child’s eligibility for aid. A potential work around could be established if the trust was restricted to withdrawing just the principal for the beneficiary.
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