College Savings - by Peter Geckeler
So there’s good news, and there’s bad news – I’ll start with the bad news:
1) On average, college tuition tends to increase about 8% per year.*
2) U.S. Student Loan debt exceeds 1 Trillion dollars.^
I hope you were not drinking water because you may have just spit it out in classic Hollywood fashion after reading those astounding facts.
As student loan debt continues to spiral out of control, advisors are increasingly asked by students and parents what the best avenues to save for college are. There are a number of options to save for college (listed in chart below) that range from you normal savings account held in the bank to individuals utilizing retirement accounts to pay for college. I will briefly discuss one of the most popular options and will post in future weeks about other college savings options:
These accounts are tax advantageous - Investors pay in after-tax money, and the earnings on the inherent investments account grow tax deferred. The contribution limits are high for 529 accounts, where an individual can make up to a $70,000 annual contribution to a 529 account with no income restrictions on contributions. When the student is ready to pay the fun college bills, as long as you’re spending the 529 funds on tuition, room and board, books, computers and other education-related fees, you won’t be taxed on the proceeds. An important factor to consider - withdrawals from a 529 for unqualified expenses are subject to income tax and a 10% penalty on the earnings.
Legacy Planning Group helps clients establish and fund 529 accounts on a regular basis, so reach out if you want to learn more!
*Statistic found at http://www.finaid.org/savings/tuition-inflation.phtml
^Statistic found at http://collegedebt.com/