What Is A 529 Plan? Why Do You Think It Is Important for Future Higher Education?
The best advice I can give someone saving for college is to truly embrace that adage that “the days are long, but the years are short.” As I sit here with the youngest of my three about to finish her freshman year in college, I feel the feeling that I hoped to feel when I opened their accounts sort of duty bound years ago: that none of my kids will graduate from college owing a single dime of student loan debt. I can assure you it feels like we got here in the blink of an eye.
Since the “years are short”, you must convince yourself that time is of the essence and get started as early as possible. Researching state 529 plans is an excellent starting point. While plans vary by state, some states offer free 529 plans with potential for a state-income-tax deduction or even a match on your deposits based on income. Accounts can be opened by a bank draft for a small monthly contribution (approximately $10/month). It’s comparable to a mini-401(k) plan for college savings. Let’s face it, $10/month disappears unaccounted for in most people’s lives so it won’t be missed if you direct those funds automatically to savings. Keep in mind that all 529’s are not created equal and some are loaded with fees, but if given a long enough track to run on, the tax-free withdrawals of the earnings for qualified education expenses make it hard to beat. Be sure you read the fine print of your state’s plan.
Often the only barrier to getting started is one’s own inertia. To overcome inertia, use your imagination and create a conversation with your young adult child as they ponder their college choice and ask yourself “Am I okay with their choices being limited by finances when I have time to accumulate resources for this goal?” And then at the celebration dinner after their college graduation, imagine them thanking you for your contribution (however large or small).
Run the numbers or enlist a financial professional to help you and you will see that in the far future, this goal is not all that different from buying a house. Instead of borrowing the money now and paying it down bit by bit, make an educated guess at what the balance needs to be when your child enters college and then pay that “note” off bit by bit every month just as you do your mortgage. In 15-30 years (the typical mortgage term), you’d own your house and with a 529 plan and regular contributions, in 18-22 years, you’ll hopefully be staring at a college graduate who owns their degree and has less debt as they embark into true adult life.
The logical part of saving is just math and it can be easily calculated. But that won’t inspire someone to act. Getting a clear vision of what you want to happen and how you’ll want to feel and be respected by your future graduate can be the momentum you need to overcome inertia and open that account.
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The views stated in this piece are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.
Nothing herein should be construed as offering or disseminating specific investment, tax, or legal advice to any individual without the benefit of direct and specific consultation with an investment adviser representative authorized to offer. Information contained herein shall not constitute an offer or a solicitation of any services.
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan
For discussion purposes only and in no way represents legal or tax advice. For advice regarding your specific circumstances, the services of an appropriate legal or tax advisor should be sought.
Pete Bush, CFP®
CEO | Financial Advisor
Horizon Financial Group | 8280 YMCA Plaza Drive, Building 5 | Baton Rouge, LA 70810 | 225-612-3820
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