Is College Planning Part of Your Personal Finance Objectives?
College funding is one of the paramount long-term financial concerns of today’s parents, along with home savings and retirement planning. Saving can be difficult for any reason, even for a short term goal like a holiday vacation, so in the US government agencies have stepped in to provide parents and grandparents with an appealing system of college funding called the 529 plan.
The “529” comes from the relevant section of the US Internal Revenue Code, similar to Section “404” of the popular 401(k) retirement savings plan. 529 plans - and there are a host of variations - offer significant tax advantages to participants while at the same time offering the security and flexibility demanded by parents who cannot precisely predict the plans of their children for post-secondary education.
Foremost in the advantages offered by 529 savings plans are their tax-deferred status. This shelters the invested funds from state and federal taxation as it grows, thus allowing the funds to grow at a faster rate. The plans can also be funded in various ways, in accommodation with the budgets of the parents. Lump sum payments can be made to inaugurate a 529 plan, and these lump sum payments are immune from gift taxes if within set financial limits. Other provisions in the structure of 529 and similar college savings plans address the issues of control and dispensation. For example, the parent or parents retain control of the fund assets regardless of the beneficiary’s age, and the beneficiary itself can be changed from one member of a family to another if need be.
Once the beneficiary decides that they do indeed wish to attend college, the parents are free to use the funds for not only tuition, but for books, supplies, even residential accommodation. In addition, the funds can be used towards most any school, large or small. Even foreign schools are eligible. Last and certainly not least, 529 plans are protected from creditors in the event of a personal bankruptcy by the fund holder. This thoughtful provision spares the beneficiary from suffering from their parents’ misfortunes.
All things considered, today’s parents or parents to be should ask their financial advisor about 529 plans or other similar college funding plans. Due to the facts that the funding terms are so flexible, the advantages so appealing and the “cause” so worthwhile, it’s no wonder these plans have been met with such a great response!
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