We all know college is a huge expense, but the cost is also increasing every year.
Tuition fee inflation is rising 6 percent a year. This corresponds to an average consumer inflation of 2 percent and wage inflation of 3 percent.
College expenses have grown faster than any other expense (including healthcare!) Over the past 30 years. Ouch!
Fortunately, there is a savings solution specially prepared for these costs – 529 college savings plans.
The family benefits of investing in a 529 plan are enormous, but 70 percent of Americans are ignorant of these tax-privileged plans, and only 14 percent are currently using them.
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Instead, parents often use their personal savings account or choose other savings plans that don’t offer many of the benefits and protection of 529.
Others are being wooed by a wider range of well-marketed financial products that compete for parents’ dollars.
We are happy that you are here! Learn how 529 plans can benefit your future college kid.
1st Floor Wars: Return on Investment
We know your kids will grow over time – but did you know your investment in 529 will grow too?
A 529 has an average annual return of 6-7 percent based on historical data, which means your investment returns could rise faster than those of your middle schooler!
2. Feds with benefits
All the fun of a 401k without the age! The earnings on your 529 account are deferred for tax purposes.
When you make 529 account withdrawals for qualified college expenses or tuition for private or religious elementary and secondary schools, the receipts in your 529 account are not subject to federal income tax (and in many cases, state income tax).
So when Tax Day comes you don’t even have to look at your 529 because it won’t cause you any heartache.
3. Your state wants smart cookies
In addition to the federal government not taxing your 529, some states (more than 30 including the District of Columbia) offer additional tax deductions and incentives for their residents.
These benefits may include the deduction of state income tax contributions or equivalent grants.
With state and federal benefits, this means the longer your money is invested, the more time it has to grow and the greater your tax advantage.
4. Parental controls
Everything seems to have parental controls these days: search engines, web streaming accounts, your family iPad, whatever you call it.
However, many popular investment accounts and custody accounts are designed for minors, which means that parents do not control them.
With a 529, parents stay in control of the account.
Even if you feel like you are losing control of your wild child on a daily basis, you can always be sure that once they turn around, they won’t be able to spend their dollars on skydiving and video games.
5. Protect this asset!
Even in your worst financial situation, the 529 you contributed to is in no danger.
Qualifying assets in 529 plans – that is, funds deposited in a 529 plan more than two years prior to filing for bankruptcy – are fully protected from bankruptcy.
6. Low fees, yes please!
For most of the 529 plans, the underlying fund spending is very low, especially when compared to other funds like life insurance.
There are also new 529 services that are even cheaper compared to traditional financial advisors, like the U-NEST mobile app, which waives all broker-dealer commissions and charges a simple $ 3 monthly advisory fee.
7. You can still get paid with financial aid
Even if you have saved a good amount of money for your child, you will not detract from the potential financial aid.
A 529 is considered parental property by the FAFSA, so it will only affect the Parents’ Expected Family Contribution (EFC) by no more than 5.64 percent of the 529 plan assets.
8. The ultimate gift: one size fits all
Your sister wants your 1 year old to get something amazing that they won’t outgrow within 5 months.
Your grandpa wants to bring your 15-year-old something cool, but pronounces memes like he’s warming up for the opera (“mi mi mi mi!”).
With 529, friends and family can donate money straight to a child’s 529 college savings account, helping them grow faster.
Giving is much easier now (and extremely thoughtful at the same time!).
9. Flexibility at yoga level
The only thing set in stone is that nothing is set in stone. Because of this, the beneficiary of a 529 can be changed to a different child or family member at any time.
Education costs also include a range of options (tuition, accommodation, books, equipment, even schools K through 12).
So, your oldest daughter Jane got a full scholarship to her top college and doesn’t need her 529 funds?
No problem, her younger brother John can easily take it over – maybe he can study music at this private liberal arts school after all.
How do you get the best 529 for your kids?
Now that you know 529 is the best way to save for education, where do you go from here?
Finding the best 529 plan used to be a long and complicated process, whether to find a 529 to sell directly through an optimal government program or to purchase a plan through an expensive financial advisor.
But not anymore! In October 2018, U-Nest launched as the first and only mobile app to simplify the 529 process. It replaced the hours of expensive meetings with financial advisors, faxing, copying and sending paperwork with an absolutely secure process without paper. You can have a 529 set up on your phone in about 5 minutes.
The best apps to save real money
We talk a lot on the phone, don’t we? Wouldn’t it make sense to save money with the best money-saving apps?