This year, the estimated total cost for four years at a public university is over $41,000, and over $138,000 for a private university. In ten years time, those numbers will grow to over $80,000 for public, and over $271,000 for private university tuition. Many families are preparing for their children now through 529 savings plans. Matt Allgeyer, Financial Planner at Wamhoff Financial Planning & Accounting Services, reviews 529 plans.
1. The situation:
• College tuition costs are currently rising an average of 4-6% per year.
• Students and families are taking on a great deal of debt to pay for college. In fact, 37 million Americans have student loan debt.
• Current student loan debt is $1.1 Trillion. That represents a growth of 300% in the past eight years.
• Average debt per student is $26,600.
2. Saving for College with a 529 Plan:
• A 529 is an education savings plan to help families set aside funds for future college costs.
• You can put periodic deposits into an account that can be used for higher education costs.
• A 529 can be used for books, tuition, fees, supplies, room and board, as well as equipment and services that will be used for school purposes like computers and internet access.
• It can be set up by parents, grandparents, or other family members.
3. Tax Benefits of a 529 Plan:
• There is no initial federal tax deduction, but the monies grow tax deferred and are tax free when used for higher education expenses.
• Missouri taxpayers can deduct up to $8,000 per year per individual from their Missouri taxable income.
• Illinois has the largest deduction limit of any of the 50 states of $10,000 per year per individual.
4. Transfers and Penalties:
• If your child does not use the funds, you can change the beneficiary of the plan to another family member with no penalties.
• If you do not use the funds for college or upper education expenses, you can take the money out but will pay a 10% penalty and income tax on the gain in the investment.