Whether state university or private school, the cost of sending a child to college has become quite expensive. According to CollegeData.com, a moderate college budget for an in-state public college for the 2017-2018 Academic Year averaged $25,290 dollars, while a moderate budget at a private college averaged $50,900. While that includes tuition, fees, housing and meals, books and school supplies, personal and transportation expenses, it doesn’t take into account that colleges can and will increase how much they charge for tuition in future years. According to CNN Money, the average net price went up by $900.00 at public colleges and $1,760.00 at private colleges over the past two years, So what’s a parent to do? At Tax Savings Professionals, we recommend checking Net Price Calculator Center to get an idea of costs at preferred schools, then start putting money into a 529 Plan.
A 529 Plan offers many tax benefits which are better than depositing funds into a traditional savings account or tapping into your retirement savings. Investment earnings in a 529 Plan are not subject to federal capital gains tax and are generally not taxed by state governments when used for qualified education expenses such as tuition, fees, books, room and board. Plans vary state-by-state, but, as an example, the direct-sold Florida 529 Savings Plan offers several investment portfolio options designed for savers of all risk levels, and the Florida Prepaid College Plan lets you lock in tuition at today’s prices even if they skyrocket by the time your child is ready to enter college.
Sounds like a win-win, but the 529 Plan you might be considering may not cover all education expenses. If you have questions, it’s best to consult with an expert to help you create a customized college saving strategy before you commit. Because 529 Plans are different in each state, the same advice applies no matter where you live in the U.S. With income tax breaks, possible state tax breaks (in over 30 states and the District of Columbia), simplified tax reporting and flexibility to change investment options or rollover funds, everyone is eligible to take advantage of a 529 Plan.
Do you already have a 529 Plan in place? Congratulations and go to the head of the class! Depending on how much money you’ve amassed, you might be interested to know that you now have the option (through the 2017 Tax Cuts and Jobs Act) to use up to $10,000 in annual tax-free 529 withdrawals to cover private elementary and high schools costs. While there are a number of benefits to paying for K-through-12 tuition with a 529 Plan, first take into consideration how much you’ve saved, and how much more you will eventually deposit. Because a college education is much more costly, you don’t want withdrawals for earlier education to drain college savings. If you have an impressive balance, by all means, investigate whether the recently passed tax advantage for 529 Plans can be utilized as a tax saving strategy.
At Tax Saving Professionals, we have worked with thousands of clients over the past 18 years and can answer any questions you may have about 529 Plans and offer financial strategies for yourself, your children or grandchildren. Give us a call at (772) 257-7888 or click on our contact form today.