- Smart parents and grandparents invest in their children’s higher education.
- The Private College 529 plan locks in today’s tuition, saving big on future costs and providing flexibility in school choice.
- Contributions are secure and receive the same federal tax benefits as any 529 plan.
What is the best gift you can give to your children or grandchildren? Even if they claim it’s the hottest toy or technology on the market, forward-thinking parents and grandparents know that a good education will benefit their children’s lives for many years.
That’s precisely why LaShanda A. has been saving for her nine-year-old daughter’s college education since kindergarten. “My parents grew up in a time when black people didn’t have access to many educational opportunities. They always told my brother and I that education is the one thing people can’t take away from you: a Once you have it, it’s yours,” she says.
“For the career choices my wife and I made, higher education was very important,” said former banker Ben S., adding that he wanted his three boys, ages 10, 12 and 14 years, have the same opportunities.
Both LaShanda and Ben saved for their children’s college education through the Private College 529 plan. Here’s why it might be a great fit for your family, too.
1. You can lock in current tuition fees to protect against tuition inflation
Ben was attracted to the Private College 529 plan to help protect against tuition inflation, given that tuition at private colleges in the United States has increased by 38% over the past year. last decade, according to College Board data.
Most state 529 plans are essentially investment accounts, so growth is tied to markets, but there can also be market loss. The Private College 529 plan allows you to prepay a portion of tuition now, locking in current tuition rates and potentially saving thousands of dollars in the long run.
Private college 529 plan — graph assumptions*
LaShanda agreed that knowing how much her daughter’s college tuition would cost was the number one factor in choosing this plan. “No one knows what tuition rates will be in 12 years,” she said, adding that peace of mind is better than any return on investment.
2. Your child will be able to study at colleges across the country
Unlike prepaid 529 plans offered by a handful of states, which may have residency requirements or limit their use to public schools, you can open a Private College 529 account from any state and use your prepaid tuition in nearly 300 private colleges across the country.
The colleges covered by the plan range from large research universities to small liberal arts schools to well-known names like Stanford, MIT and Princeton. With so many colleges on the plan, there are options for all academic interests. And when you save in the plan, you don’t need to choose a school; you save for them all.
“There is a good mix of top schools in the network,” Ben said. “My oldest is starting to get interested in college, and a lot of schools he’s excited about are on the list.”
LaShanda said seeing his alma mater, Spelman College, on the list of participants confirmed that this was the right investment approach for them. “I know if Spelman partners with someone, then it’s a reputable company,” she said, hoping her daughter will also choose to patronize Spelman.
3. You can save in a way that works for you while still allowing your child to achieve financial freedom
The Private College 529 plan offers many ways to contribute based on your financial situation, from one-time lump sums to recurring deposits over multiple years.
LaShanda appreciates how easy it has been to set a savings goal and plan monthly deposits to meet his goal before his daughter graduates from high school. She and her husband both graduated debt-free, and they are determined to provide the same for their daughter by paying her full tuition upfront. It’s their way of giving them a head start in life, allowing them to focus on their future plans.
“We are planning to retire when she goes to college,” LaShanda said. “We’ll know it’s taken care of and then we can use our money for other things.”
Additionally, there are many tax benefits that can make investing in the Private College 529 plan a smart decision for your children. And yourself. It’s a great way to protect your investment growth from taxes: even though you can’t deduct contributions from your federal taxes, you don’t have to pay annual income taxes and withdrawals remain tax-free. tax as long as they are used for eligible studies. expenses.
If you live in one of these nine tax parity states, you can save in any 529 plan while still receiving state tax benefits: Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio and Pennsylvania.
The Private College 529 plan can also be a powerful tool for grandparents and families thinking about estate planning – contributions are considered an exclusion gift, so they are exempt from federal estate tax, are eligible for the annual gift tax exclusion and can be superfunded – meaning you can combine 5 years of annual exclusions into a single gift – to significantly reduce the taxable value of your estate.
And new this year, distributions from 529 plans owned by families other than parents are not reported on the FAFSA. This means that grandparents in particular can have a major impact on their grandchildren’s college savings.
4. You have flexibility with your savings
You may have ideas about where your children or grandchildren will go to college, but it’s impossible to know for sure. Fortunately, even if your children don’t attend a school participating in the Private College 529 plan, there are many other ways to invest the money in your family’s future.
For example, you can easily change the beneficiary to another family member. Ben, who has accounts for each of his three children, explained that if his eldest attends a partner school, he would allocate funds from all three accounts.
Plus, your prepaid tuition is guaranteed for 30 years, so it could even be saved for the next generation. You can also transfer your funds to another 529 plan or get a refund. And starting this year, unused funds from a 529 plan can be rolled over into a Roth IRA for the beneficiary’s retirement.
“I think it’s the best of both worlds: We can lock in tuition, but my daughter also has flexibility,” LaShanda said.
Learn more about how to prepare your child for success with the Private College 529 plan.
Transfers to other 529 plans, redemptions, and Roth IRA transfers are subject to the Private College 529 plan redemption value which is calculated as total contributions adjusted for net investment returns, subject to a maximum annual increase of 2% per year or a maximum loss of 2%. per year (0% loss after July 1, 2024), compounded annually.
*The family opens a Private College 529 Plan account for their 8-year-old and pays a lump sum with tuition increases of 4% per year. When you save with the Private College 529 plan, you purchase tuition at then-current rates for each college in the plan.
This article was created by Insider Studios with the Private College 529 plan.
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