Broker Check

529 Plans

Saving for college has become complicated. What's the best way to save? That depends on your age, risk tolerance and employment status, as well as the number and ages of your children. Do you want to fund a public or private education? Is your student a candidate for federal financial aid? Other considerations include the steady increase in college costs and finding the best "fit" for your student and family.

Between 1985 and 2011, average tuition nationwide increased 498 percent - more than four times the rate of general inflation (114 percent) as measure by the Consumer Price Index.1 The national average costs for tuition, fees and board at a public, in-state 4-year school is more than $20,000 and it is more than $46,000 for the average private 4-year school. If you don't start saving today, it could cost you over $150,000 to pay for college ten years from now.2

College savings options include prepaid college plans, 529 savings plans, Coverdell Education Savings Accounts, custodial accounts, and mutual fund investments. The biggest difference between a prepaid college plan and a 529 plan is that prepaid college plans are guaranteed by the state; 529 plans and mutual fund investments are subject to fluctuations in the financial markets.

Some of these options have contribution constraints; the Coverdell limits the maximum annual investment to $2000 per student in 2018, making it difficult to accumulate enough to pay for all your college costs. Conversely, the 529 plans and custodial accounts have no limits, or very high limitations, on the maximum contribution amounts.

The funds in a 529 Savings Plan can be used for qualified higher educational expenses, like tuition, room and board and textbooks. It gives you flexibility to use the funds as you see fit, to meet your child's needs. Investment options vary from the very conservative to more aggressive options, customized to meet your desired level of investment risk. Your payments into a prepaid college plan are based on your child’s age (estimating the time before entering college). With mutual fund investments and 529 savings plans, you may have some flexibility with the investment amount.

The earlier you start saving, the more opportunity you have to spread your contributions over time to reach your savings goals. Most students use a combination of strategies to pay for a higher education: state-based prepaid college plans, 529 savings plans, mutual fund investments, scholarships, grants and aid-based work programs.

And you may want to consider additional ways to cut college costs:

  • By enrolling in all the honors and Advanced Placement (AP) courses they can in high school, your student may pass the AP exams and earn enough college credits to enter college with a sophomore status. The College-Level Examination Program (CLEP) exams allow students to earn college credit for what they already know.
  • These days, many families opt to have their student to attend a local community college before transferring to the university of their choice. This way, the first two years of college are completed at a fraction of the cost of a 4-year school. Additionally, entrance requirements are significantly easier as a transfer student, as opposed to those they face in the competition as a high school senior.
  • Shop around to find a school where your student's test scores, scholastic achievements and grade point average are above the freshman average. Colleges are looking for well-rounded students, not just the academic stars. Other factors used in ranking applicants include character, leadership and public service.

Saving for college may appear daunting, but your opportunity for potential earnings increase with the amount of your contributions and the amount of time you have to save. Assuming your investments are successful, your initial investment will continue to earn returns, and those will be compounded over time. Give us a call to explore the education savings options we have to offer

 

 An investor in a 529 plan should consider the investment objectives, risks, and charges and expenses carefully before investing in the contract, and/or underlying portfolios. The official statement contains this information as well as other important information. A copy of the official statement may be obtained from the state offering the 529 plan. You should read the official statement carefully before investing.

It is possible to lose money by investing in securities. 

An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program.

1."College Tuition Inflation: An Overblown Crisis? by Tom Lindsay, Dec. 2017

2.National Average College Costs, myfloridaprepaid.com/what-we-offer/cost of waiting/ 2017