(KTVI) – This year, the estimated total cost for four years at a public university is over $41,000, and over $138,000 for a private university. In ten years time, those numbers will grow to over $80,000 for public, and over $271,000 for private university tuition. Many families are preparing for their children now through 529 savings plans. Matt Allgeyer, Financial Planner at Wamhoff Financial Planning & Accounting Services, reviews 529 plans.
1. The situation:
- College tuition costs are currently rising an average of 4-6% per year.
- Students and families are taking on a great deal of debt to pay for college. In fact, 37 million Americans have student loan debt.
- Current student loan debt is $1.1 Trillion. That represents a growth of 300% in the past eight years.
- Average debt per student is $26,600.
2. Saving for College with a 529 Plan:
- A 529 is an education savings plan to help families set aside funds for future college costs.
- You can put periodic deposits into an account that can be used for higher education costs.
- A 529 can be used for books, tuition, fees, supplies, room and board, as well as equipment and services that will be used for school purposes like computers and internet access.
- It can be set up by parents, grandparents, or other family members.
3. Tax Benefits of a 529 Plan:
- There is no initial federal tax deduction, but the monies grow tax deferred and are tax free when used for higher education expenses.
- Missouri taxpayers can deduct up to $8,000 per year per individual from their Missouri taxable income.
- Illinois has the largest deduction limit of any of the 50 states of $10,000 per year per individual.
4. Transfers and Penalties:
- If your child does not use the funds, you can change the beneficiary of the plan to another family member with no penalties.
If you do not use the funds for college or upper education expenses, you can take the money out but will pay a 10% penalty and income tax on the gain in the investment.