There are numerous incentives for parents to save for a child’s future higher education, rather than rely on borrowing. Cost is one. Total charges at both private and public four-year colleges rose more than 4% from 2011-2012 to 2012-2013, according to the College Board.
Source: The College Board, “Trends in College Pricing 2012.”
Another incentive is the realities of borrowing. The Federal Reserve Bank of New York found student loan debt reached nearly $986 billion as of the first quarter, and college loans are second only to mortgages as the largest source of household debt.
A 529 savings plan offers tax advantages
Proceeds from a 529 college savings plan may be used for tuition, fees, room and board, books, and other qualified expenses. Anyone can contribute to your child’s account. There are several tax advantages including:
- Earnings accumulate free of federal income tax
- Contributions to the account may be removed from your estate for tax purposes
- A special gift tax exclusion enables you to make five years’ worth of gifts to a single beneficiary in one year without triggering the federal gift tax
- Some states offer tax advantages for 529 contributions
Parents or grandparents of children with higher-education goals in their future may be interested in learning more about the benefits of establishing a 529 college savings plan. Putnam’s College Savings Planner calculator lets you review your savings goals and model different ways to reach them.