“I don’t know,” said working mom, Stephanie Callens when asked about how she hoped to fund her 18-year-old’s college education. “I guess loans, grants, scholarships.”
Consumer advice syndicated radio host, Clark Howard said a 529 plan is the best way to save for your child’s college education. A 529 plan allows families to set aside money for children’s education. These plans are tax free. In addition, money used on eligible education expenses like tuition, books other fees is also tax free. Another advantage, Clark says is if one child decides not to use the savings, it can be transferred to another child.
Perhaps your child is of college age and receives a full scholarship, in that case the 529 plan’s savings can be withdrawn and used for anything as long as taxes have been paid on earnings. Moreover, if your child decides to skip college, the money can be withdrawn; you pay taxes and a 10 percent penalty.
529 plans for college are being pushed here in Georgia due to the additional requirements and reductions recently passed in the state-funded HOPE scholarship program. Georgia’s Path2College 529 plan gives families the opportunity to realize a dream of one day seeing a child graduate from college.
Anyone is able to open an account and contribute to the account on behalf of a beneficiary. The Georgia plan also allows out-of-state residents to contribute to the state’s plan. However, the plan is not just a Georgia plan. Most states in the nation offer 529 savings plans for college.
Howard used his consumer advice and information website to compile a list of the best plans out there. “My 529 guide…has nothing but good news,” Clark said. He goes on to say the recession has made 529 plans a better deal as plan administrators have found it tough to get parents to sign up and contribute.
He says the current economic state has created a market share war between the different plans allowing management fees to decrease from state to state.
What you should know about 529 Plans…
- Age-based portfolio investment options are preferred. As your child ages, the investment plan adjust to a more traditional form of investment as college nears.
- These plans are and must be sponsored by a state. It doesn’t matter if you are a resident of that state or not. Individuals are allowed to shop each state for the better deal and put their money in any state 529 plan they would like. However, some states have more than one plan. So it is important to be vigilant of which plan you are choosing.
Howard listed plans in Utah, Iowa, and New York as having the very best plans in the country because of extremely low costs.
With rising costs of college education, 529 plans are a good way to sponsor your child’s college education. But according to Howard, Callens may be on the right track after all.
“You shouldn’t save a penny for college unless you are already saving the maximum you can for your own retirement,” the consumer advice expert said. He suggests paying for college with grants, loans, scholarships and work. “Retirement happens only if you have saved the dough.”