April 12, 2024

4 Reasons Why Private College 529 Plan is a Wise Investment for Your Child

  • Smart parents and grandparents invest in higher education for their children.
  • The Private College 529 Plan maintains current tuition rates, saves a lot on future costs and offers flexibility in school choice.
  • Contributions are safe with the same federal tax benefits as any 529 plan.

What is the best gift you can give your children or grandchildren? While they may claim it’s the hottest toy or technology on the market, forward-thinking parents and grandparents know that a good education will benefit their children’s lives long into the future.

For this reason, LaShanda A. has been saving for her nine-year-old daughter’s higher education since kindergarten. “My parents grew up in a time when black people were denied access to many educational opportunities. They always told my brother and me that education is the one thing people can’t take away from you – once you have it, it’s yours.” she said.

“For the career choices my wife and I made, higher education was very important,” says former banker Ben S., adding that he wants his three boys – aged 10, 12 and 14 – to have the same opportunities.

Both LaShanda and Ben have saved for their children’s higher education using the Private College 529 Plan. Here’s why it might be a perfect fit for your family, too.

1. You can lock in current tuition rates to protect against tuition inflation

Ben was drawn to the Private College 529 Plan to help him hedge against tuition inflation, as tuition for private colleges in the U.S. has risen 38% over the past decade, according to College Board data .

Most state 529 plans are essentially investment accounts, so growth is tied to the markets, but there can also be market loss. The Private College 529 Plan now allows you to prepay a portion of your tuition, securing current tuition rates and potentially saving thousands of dollars in the long run.

chart showing tuition growth over time and tax-free savings

Private College 529 Plan — graph assumptions*

LaShanda agreed that the certainty of knowing how much her daughter’s college tuition would cost was the most important factor in choosing this plan. “No one knows what tuition will be in 12 years,” she said, adding that the peace of mind is better than any ROI.

2. Your child can look at colleges across the country

Unlike the 529 prepaid plans offered by a handful of states, which may have residency requirements or limit use to state colleges, you can open a Private College 529 account from any state and use your prepaid tuition at nearly 300 private colleges across the country.

The colleges in the plan range from large research universities to small liberal arts schools, including household names like Stanford, MIT and Princeton. With so many colleges in the plan, there are options for every academic interest. And if you save in the plan, you don’t have to choose a school; You save for them all.

“There is a good mix of top schools in the network,” Ben said. “My oldest is starting to get interested in colleges, and many of the schools he is excited about are on the list.”

LaShanda said seeing her alma mater, Spelman College, on the participant list confirmed that this was the right investment approach for them. “I know if Spelman works with someone, it’s a reputable company,” she said, hoping her daughter would also choose to go to Spelman.

3. You can save in a way that works for you while preparing your child for financial freedom

Private College 529 Plan offers many ways to contribute based on your financial situation, from one-time lump sums to recurring deposits over several years.

LaShanda loves how easy it was to set a savings goal and schedule monthly deposits so that they reach their goal by the time her daughter graduates high school. She and her husband both graduated debt-free, and they are determined to do the same for their daughter by paying her full tuition in advance. It’s their way of giving her a head start in life so they can focus on their future plans.

“We have plans to retire when she goes to college,” LaShanda said. ‘Then we know that this has been arranged, and we can use our money for other things at that time.’

Plus, there are plenty of tax benefits that can make investing in Private College 529 Plan a smart move for your children And yourself. It’s a great way to protect your investment growth from taxes: Although you can’t deduct contributions from your federal taxes, you don’t have to pay annual taxes on earnings, and withdrawals remain tax-free as long as they’re used for qualified educational institutions. expenditure.

If you live in one of these nine tax parity states, you can save in any 529 plan and still get tax benefits: Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio and Pennsylvania.

Private College 529 Plan can also be a powerful tool for grandparents and families thinking about estate planning – contributions are considered an exclusionary gift, so they are exempt from federal estate taxes, qualify for the annual gift tax exclusion, and can be overfunded – which means that you can combine five years of annual exclusions into one gift – to dramatically reduce the taxable value of your estate.

And new this year, distributions from 529 plans owned by family members other than parents are not reported on the FAFSA. This means that grandparents in particular can have a major influence on their grandchildren’s education funds.

4. You are flexible with your savings

You may have ideas about where your children or grandchildren will study, but you are not sure. Fortunately, even if your children don’t attend a school that participates in the Private College 529 Plan, there are plenty of other ways you can invest the money in your family’s future.

This way you can easily change the beneficiary to another family member. Ben, who has accounts for each of his three children, explained that if his eldest attends a partner school, he would allocate money from all three accounts.

Plus, your prepaid tuition is guaranteed for 30 years, so it can be preserved even for the next generation. You can also transfer your money to another 529 plan or request a refund. And starting this year, unused funds in a 529 plan can be converted into a Roth IRA for the beneficiary’s retirement.

“I think it’s the best of both worlds: We can lock in tuition, but my daughter also has flexibility,” LaShanda said.

Learn more about preparing your child for success with the Private College 529 Plan.

Rollovers to other 529 plans, redemptions, and Roth IRA rollovers are subject to the Private College 529 Plan redemption value, which is calculated as total contributions adjusted for net investment returns, with a maximum annual increase of 2% per year or a maximum loss of 2% per year (0% loss after July 1, 2024), compounded annually.

*Family opens a Private College 529 Plan account for their 8-year-old child and contributes one lump sum with a 4% annual tuition increase. When you save with the Private College 529 Plan, you purchase tuition at the then-current rates for each college in the plan.

This post was created by Insider Studios with Private College 529 Plan.

Leave a Reply

Your email address will not be published. Required fields are marked *