Tackling college debt is bad enough without not knowing one of the best collegiate funding revenue generators available: the college 529 plan. A new report says that 75% of Americans don't know about 529 plans.
A recent article in thestreet.com, "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem," asks how this is even possible, given the fact that college debt is a huge issue in academia and the media—as well as in thousands of dining rooms across the U.S.
The cost of education is a big concern for many Americans, but there's a downward trend in 529 awareness that persists year after year.
Experts say that a 529 plan is a "no brainer." 529 funds can be used for any qualified educational expenses at any college in the U.S. and many abroad. A 529 savings plan can be passed from one generation to the next. The funds don't expire, so a parent or grandparent can start saving for children that aren't even born yet in a 529 savings plan. Plus, you can use or purchase any 529 savings plan from any state.
But the state in which you purchase your 529 savings plan should be considered carefully. States have different college funding plans.
To get the most back for your 529 plan buck, you need to be creative. Get the whole family involved, like having the grandparents superfund a 529 plan by contributing five years all at once. They can make a five-year election—contributing the maximum allowed for five years all at once—which is a $70,000 contribution. This also helps the grandparent with estate planning by placing their assets in a tax-deferred account for the benefit of their grandchild.
Sallie Mae, a leading college financial services company, suggests this 1-2-3 approach when using 529 plans:
- Start a savings account. Use this as your college fund and deposit gifts and take advantage of free services that let you earn cash back to save for college.
- Make regular contributions. Set a goal, and create a routine of depositing some money. A small amount will add up over time, and automatic deposits make saving easy.
- Consider tax-advantage options. You can use your money to work for you in a dedicated college savings program, such as a Coverdell Education Savings Account, prepaid state college savings plans, or a 529 college savings plan.
Understanding 529 plans is a crucial ingredient to cutting down on the student loan crisis.
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Reference: thestreet.com (May 22, 2016) "Most Americans Don't Know What a College 529 Plan Is – And That's a Problem"