Section 529 Accounts: A Smart Way to Save For College – Guest Post
We all know that college is very expensive. The upward spiral of college tuition costs is sickening, and what’s even more disheartening is the thought of borrowing $100,000 to pay for schooling, especially since a college degree doesn’t necessarily guarantee a prominent job right away.
While the unemployment rate has dropped to almost 8% (January 2012, U.S. Bureau of Labor Statistics), finding a job for recent grads can be a very daunting task. This uncertainty of finding a well-paying job right out of school, means that it is essential for students to make smart financial decisions and minimize their college debt. After all, school loans do not just go away with time!
One of the best ways to minimize tuition costs and college debt is by creating a Section 529 Account. This type of account allows parents to invest money tax-free for their kids’ education. It can also be used for parents to “prepay” for their child’s tuition college credits.
Here are a few things that you need to know when considering a 529 Account:
• Prepay Option – If college is still a long ways off for your child or grandchild and you expect inflation, consider prepaying for college credits. This is usually done on a state by state basis, although that does not mean you must only prepay for the state you are living in. When doing this, make sure that you carefully read all stipulations, especially if you are buying credits in another state.
• Investment Option – The second option within a 529 account is through investing tax-deferred funds for college education. While you still have to pay income taxes for the initial investment funds on your 529 account, you don’t have to pay taxes on investment gains (provided that you use the money for approved college expenses). Once again there are some stipulations on this savings plan, but it can be an excellent way to save money for school.
• Alternatives – A 529 Account is one of many creative ways to save for college, but it may not be best for your current situation. Investigate other options like the Coverdell Education Savings Account. If you have a financial advisor, talk to them about planning for your child or grandchild’s college education costs. Also, take advantage of many online resources dedicated to helping you succeed in being financially free of debt!