1) College is Expensive
According to the College Board the average tuition for a 4 year private education is $39,518 per year. The average cost of a 4 year in- state public education is $17,860. Either way, it’s a lot of money.
Looking at these numbers many parents get discouraged and do nothing. This is a big mistake. Start where you are. Put away some money for college. Have it taken out of your checking account automatically every month. If you don’t see it, you won’t miss it.
Many commentators are questioning the value of college now. After spending all of this money, it’s difficult for many graduates to get a job. Some statistics seem to support this. However, as the economy improves and unemployment declines this situation will change. In order to compete in this marketplace people will need to have marketable skills. This could be a 4 year degree, a 2 year degree or perhaps graduating from a technical school. Without some formal education after high school it appears to be very difficult job market.
2) Prepay 5 Years
An individual can gift up to $14,000 per year to an unlimited number of people without having to file a gift tax return or pay a gift tax. With the 529 plan however there is an additional option. With the 529 Plan you can fund 5 years of annual gifts, $70,000 ($14,000 X 5) in one year. A spouse could fund the same amount making the gift $140,000. For these gifts to stay out of the donor’s estate, they would need to live the succeeding 5 years. Getting these assets out of their estate earlier however allows these funds to appreciate longer for college.
3) Keep Control of the Assets
When a 529 Plan is opened there is what is known as the account holder. This is typically the parent or grandparent that is funding the account. There is also what is known as the successor account holder. This is the person who would assume all the rights of the original owner if something happens to that owner. The final party on the account is the beneficiary. This is typically the child (or grandchild). The account holder has complete control over the account. No distributions can be made from the 529 plan without the account holder authorizing it.
Will you open a 529 College Savings Plan?
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Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.
It’s amazing how expensive college can be for people. You are exactly right. Parents or grandparents should start 529 plans early on for each of their children. It’s a great way to save for college and take advantage of tax benefits at the same time.