TEMPLE, Texas — We've talked many times on Money Talks about saving for your child’s college education.
According to the Manhattan Institute, college tuition has gone up on average 20% over the last decade. But over the last 20 years it's gone up 179%, averaging a 9% increase per year.
That is just not sustainable. So on this edition of Money Talks, we talk about one of your best saving vehicles, the 529 College Fund.
Albert Einstein, when asked if E=MC2 was the greatest thing ever noted, said “No, it's compounding interest, and even I can't explain it." So, when it comes to saving for your child's college, put it to work for you!
"The earlier you start saving the better, because your money has more time to grow and compound," certified financial planner Neil Vannoy told 6 News, "For example, if you want to save $50,000 for college and are able to earn 7% per year, you'd need to save around $115 each month to reach this goal in 18 years. But if you wait until your child is 10 before starting to save, you'd have to put away close to 3 times the amount you'd have had to save if you'd started 10 years earlier. And you would end up having to invest over $10,000 more to end up with the same amount. You can consider this extra money the 'cost of waiting' those 10 years."
You also need to use the right investment vehicles, and you need to take on the proper amount of risk versus rewards in order to let that money work for you!
"There are a few types of investment accounts that receive special tax treatment for college savings, and 529 savings plans are the most common," Vannoy said. "They don't require recurring contributions, parents maintain control of the assets, they offer tax-deferred growth and withdrawals are tax free when used for qualified higher education expenses. Most plans offer 'age based' or 'enrollment based' portfolios. These funds start out with a more aggressive mix of stocks, bonds, and cash and become more conservative college approaches."
Vannoy also had another tip to make the most for your buck and keep your costs down.
"But before getting started, make sure you have a clear understanding of any annual fees or management fees charged by the plan," Vannoy said, "and you should consider a plan that offers "no-load" investments that can be purchased without paying commissions."
Also be aware geographically where you live and what the laws are, as you'll want to maximize your tax benefit.
“If you live in a state with an income tax you'll need to use the state-sponsored 529 plan to get a tax break on contributions," Vannoy said. "Keep in mind you might lose these tax breaks if your child attends college in another state. As Texas residents we have the freedom to use any 529 plan available since we don't have to worry about a state tax deduction, so shop around and look for a 529 plan with no sales commissions, low-expenses, and good investment options."
And if interested Neil recommends that you go to Clark Howard, or savingforcollege.com to find those funds. 15.8 million investors nationwide in America are currently taking advantage of 529 college funds. If you just had a baby, or are pregnant, or are trying, it's time to start thinking about this great investing tool.
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