Saving for College and Knowing Your Tax Breaks
As the costs of education continue to soar, a growing number of parents are starting to save more for their children’s future college expenses. If you own rental property or have rental investments, you should be able to be saving for college and knowing your tax breaks.
A new survey carried out by Sallie Mae and Ipsos reveals that 56 percent of parents with children over 18 say they are saving for college. But a majority of Americans (65%) that are saving for future tuition cash do so by holding the funds in old-fashioned savings or checking accounts. These accounts offer low to zero interests on savings which means the tuition cash you’re saving could be losing money in the long-run.
Since tuition costs are growing faster than savings, parents struggle to keep pace with rising education prices. If you are a future honor student or thrifty parent seeking to save comfortably for education, consider 529 college savings plan.
Besides saving for the future, 529 comes with tax advantages that you won’t get with traditional savings or investments plans. It is a tax-advantaged savings plan that‘s sponsored by states, state agencies, and educational institutions.
When you contribute to 529, that money is invested in underlying mutual funds or exchange-traded funds and grows tax-free –similar to a retirement account. What happens is the money is channeled to target-date funds that adjust the asset mix as your child gets older. When you’re ready to start paying college, you can withdraw the funds from 529 without worrying about paying taxes – withdrawals from 529 are exempt from federal taxes and most states taxes, provided they are used for “qualified higher education expenses” These include tuition, books, housing, fees, and technology.
If you haven’t started putting your savings to work in 529 plans, it’s never too late. You could be celebrating every year when National 529 Day rolls around if you set up a 529 plan today. If you’re having trouble getting started, consider seeking the help of a financial planner to assist with making the most sense of your situation.