Choosing Long-Term Planning for College

As states across the country are being forced to make budget cuts, some affect higher education. Class sizes are growing, curriculum is shrinking and the cost of tuition, books and other college-related expenses continue to climb at an alarming rate. In the short term, there seems to be little parents can do to adjust to the rising cost of a higher education for their children. That’s why, now more than ever, it is important to think long term and take steps to make sure that, when the time comes, the resources will be there to pay for school.

The first step for parents to take on the path to an education for their children beyond high school is to start a college savings plan. The key is to start early with a plan that will provide the most bang for the buck. That’s why it’s a good idea to take a look at the many types.

What is a 529 plan? The answer to that question can vary somewhat from state to state, but there are qualities common to all 529’s, wherever they are.

First, a little history. They get their name from Section 529 of the Internal Revenue Code, which, in 1996, set up these plans with the goal of making it easier to save for higher education. The idea was to encourage the creation and utilization of financial structures that permit people to put money in a fund that grows over time and, when the time comes, allow tax free withdrawals from the fund for educational expenses.

It is similar to a 401(k) in that money can be invested in any number of ways from money market accounts to mutual funds to other financial instruments. The big advantage that this has over the 401(k) is that money comes out of the account free of federal taxes.

There are other reasons to use this method to save for college. For one thing, the money is controlled by the contributor, not by the person for whom the money is saved. This can be a comforting thought for parents who want to make sure the money is wisely spent. Also, the plan can be re-designated from one recipient to another without penalty. And, the amount of money that can be socked away in a 529 can be quite substantial, as much as $300,000 in some states.

For many, the best feature of a 529 college savings plan is its portability. Money saved in a plan in one state can be used to pay for college out of state.

So, at a time when the cost of a college education is rising fast across the country, it’s a good idea to start planning for the future and start down the path to making the dream of a higher education a bought-and-paid-for reality.

If you are interested in saving for college, having a 529 plan will help students pay for college.