One great way to save is often overlooked—a 529 plan. A recent Wall Street Journal article* reported that according to a study by Edward Jones, 66 percent of Americans don’t know what a 529 plan is. In its survey, 41 percent identified a “529 account” as a retirement savings account and 25 percent said they did not know.
A 529 plan is a tax-advantaged college savings vehicle for parents and other adults. There are two types. Both grow tax-deferred and can be withdrawn tax-free when used for qualified higher-education expenses such as tuition, and room and board. The two types are:
• 529 college savings plan—offers stock funds, bond funds and other investments • 529 prepaid-tuition plan—includes a promise to keep up with tuition inflation
Wisconsin has its own 529 plan, Edvest**. At its website, edvest.com, you can get information about plans, use planning tools, and open and manage your 529 account. And 529 accounts are not just for parents of future students. A grandparent might consider opening one and contributing to it each year as a gift to their grandchild. It might be difficult to find a more meaningful gift and investment than that!
Edvest and other 529 plan sources have investment options that can be set up based on the age of the child. Investments can be more aggressive when the child is very young and much less aggressive when closer to high school graduation. These plans help take the guesswork out of saving. And, you can easily set up monthly auto payments to them as well.
Another option for many is a Coverdell Education Savings Account (ESA). There are eligibility/income requirements and anyone who meets them – parents, grandparents, aunts, uncles, family friends—may contribute to an ESA on behalf of anyone under 18. We offer ESAs at Summit. Members appreciate that contributions and earnings can be withdrawn tax-free for qualified education expenses of the designated beneficiary. And unlike 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses as well.
For those already at the college years, you know that even after saving, scholarships, grants, work-study funds and federal student loans you still may need other loans to cover some college expenses. A private student loan like those offered at Summit can be a good option. They often require a co-signer, which can mean a better rate. Summit’s loans have no upfront fees and require the student be the primary borrower. Because we are committed to our members’ financial wellbeing, we also require a very minimal monthly payment while the student is in school because it develops good financial habits and helps the student build their credit rating, which can pay off in lower interest rates for future borrowing.
Thanks for asking! It is financially savvy to check into and take advantage of these special savings vehicles and to know your options for borrowing as needed, too.
*”Most People Get an “F” on 529-Plan knowledge,” by Annamarie Andriotis, Wall Street Journal, May 13, 2015
**This is not an endorsement of Edvest. You will need to do your own analysis of options and risk.
Kim Sponem is CEO/President of Summit Credit Union, a $2.2 billion, member owned financial cooperative with more than 144,000 members. Kim has a passion for empowering women to improve their financial well-being for a richer life. Ask Kim your money questions at SavvyMoney@SummitCreditUnion.com.