It has become increasingly challenging for families to save for college. Even with financial aid, it can be difficult to cover the rising costs of a higher education. Student debt continues to increase, setting a new record of $1.3 trillion last year.
Tax advantaged accounts such as 529 plans may help families seeking to increase their savings and reduce the need to take on college savings debt.
Chris Hennessey suggests preparing for college costs by utilizing local scholarships, tax credits, tax deductions, financial aid, and 529 college savings plans. He also discusses account ownership and distribution strategies that can affect financial aid eligibility.
Advantages offered by a 529 plan include:
- Assets grow tax free provided they are used for qualified education expenses
- The entire family may fund a 529 savings account
- When calculating assets for federal financial aid, it is more beneficial to the student if the parent or grandparent retains ownership of the account
- Grandparents may retain ownership of the account and, in certain cases, may remove the contributions from their estate for tax purposes
- A special gift tax exclusion allows for the contribution of five years’ worth of gifts to a single beneficiary in one year without triggering the gift tax
For more information on college savings strategies, read Putnam’s investor education article, “Strategies to make the most of college savings.”
Considering the many factors involved in planning for college, Putnam’s “Four-year action plan to prepare for college” may help both parents and students stay on track through the high school years, as they prepare for college enrollment.