Catching Up On College Savings This 529 Day
When saving up to pay for your child’s college, 529 plans are a popular option. They’re sponsored by states, state agencies, and in some cases, schools. Essentially, contributions can grow tax-free, and withdrawals are not taxed when they’re used for qualified expenses.
This Sunday, May 29, is recognized as 529 College Savings Day. Last summer the average 529 plan balance reached $25,664 — a new record. While that number is high in relation to previous years, some analysts warn it may not be enough to cover future educational expenses. In reality, the amount of savings you need depends on several factors including your child’s age and where your child plans to attend school.
The ongoing economic challenges facing American families are well established. Inflation is at a 40-year high, and it’s putting a lot of pressure on people’s finances. Still, recent survey data shows saving for higher education remains top of mind.
For the past 11 years, financial services firm Edward Jones and Morning Consult have gathered data concerning 529 plan awareness. While 55% of respondents reported they remain highly focused on saving for college despite inflation, just two out of five recognized a 529 plan as an important education-savings tool. Going deeper, 45% admitted they don’t think they’re saving enough for future college expenses.
The One-Third Rule
Some 529 plans function as investment accounts, so the value of your education savings can rise along with stock prices. Making routine contributions is another path towards growing the plan balance. It’s important to think about what type of school your child may plan to attend, as four-year private education costs more than public state college.
One rule of thumb many advisors suggest is to save up enough to cover one-third of the total cost of education, while leaning on current income, financial aid, scholarships, and student loans to make up the remainder. Your child’s age is also a factor, since it determines how much time you have left to save. Data shows American families remain focused on saving for higher education, and this weekend’s 529 College Savings Day is a natural time to do more research — or perhaps make a contribution.
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