college savings

Summary List Placement

The price of higher education seems to get higher every day. 

In its 2020 Trends in College Pricing and Student Aid Report, the College Board notes that, between 1990-91 and 2020-21, the average four-year public college’s tuition and fees nearly tripled in price.  Private institutions doubled in price.

Fast fact: Although the inflation rate has slowed in the last decade, from 2010 to 2020 higher-education costs still increased by 16% and 18%, for public and private schools, respectively.

For 2020-2021, the report said, the average estimated budget — which includes tuition and fees, room and board, and allowances for books and supplies, transportation, and other personal expenses — for full-time undergraduate students is about:

$27,000 a year (or $150 per school day) at public institutions.  

$55,000 a year ($306 per school day) for private colleges. 

If you multiply these annual costs by the four, five, or even six years it might take to earn a bachelor’s degree, it’s easy to understand why many families go deeply into debt seeking diplomas in the US.

The good news is there are many ways to save for college — and help your child avoid a mountain of student loan repayments in later years.

Here’s a quick rundown of some of the most advantageous ways to invest for college. Many are specially earmarked for higher education. But it pays to think outside the college-plan box, too: Many general accounts and investments could also work well, given their tax advantages or their time-oriented pay-offs. 

529 plans

“The most popular college savings option nowadays is clearly the 529,” says financial advisor Sam Davis, a partner with TBH Global Asset Management.

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A 529 plan is a state-run, tax-advantaged investment account used for education savings. Contributions grow tax-deferred within the account, and withdrawals are tax-free if they go toward the beneficiary’s qualified education expenses, including:

College costs (tuition, room and board, fees, books, supplies, equipment, computer hardware and software, and internet access)
Vocational and trade schools
Apprenticeship programs
Student loan repayments

You make contributions with after-tax dollars, so there’s no federal tax break when you add money to the account. Still, more than half of states allow some type of deduction, whether that’s a flat dollar amount, a percentage of the contribution, or the entire amount. 

While you can establish a 529 plan in any state, you won’t qualify for that state’s tax perks unless you are a resident.

With 529 plans, “the owner never relinquishes control of the assets, yet the assets fall out of the estate for estate tax purposes,” Davis says. The ability to have successor owners and change beneficiaries also aid in the popularity of the 529.”

There are no contribution limits with 529s. Still, since contributions are considered gifts, even when made on your own child’s behalf, most people limit their annual contributions to the maximum gift tax exclusion sum: $15,000 (so, $30,000 for married couples) per child.

Education savings accounts

Education savings accounts (ESAs) are similar to 529 plans: Both are investment vehicles that offer tax-free growth and withdrawals when used for …read more

Source:: Business Insider

      

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