We know it’s going to cost a bundle to send our kids to college, but many families aren’t prepared. While most parents expect their children will go on to higher education, just six in 10 parents have saved for it, according to a 2009 Sallie Mae-Gallup poll. Earlier this week, we learned about how many students are saddled with high student-loan debt.
A 529 plan is a great vehicle to save for college tax, but many don’t understand how they work. Half of parents not using 529 plans say it is because they are not at all familiar with them, the poll found.
Companies that run 529 plans, such as Upromise Investments, are trying to change that. The Newton, Mass., company, which administers plans in 11 states, is working with K-12 schools, educators, and employers and using creative marketing online to spread the word about the benefits of 529 plans. With April being National Financial Literacy Month, the push is on to educate consumers.
“We want to get people to save as much as they can so they can borrow less,” says Liz Robinson, vice president of marketing for Upromise.
With a 529 plan, you put money in a predetermined pool of stock and bond investments. When you then make withdrawals for qualified education expenses later, you don’t pay federal or state taxes on the withdrawn money. Some states also offer income-tax incentives (deductions or credits) on their state-sponsored plans. Every state, except Wyoming, has a plan. In 1996, Section 529 of the tax code created the state-sponsored plans.
Robinson and Upromise are trying to overcome some basic myths and facts about 529s, such as:
Myth: A 529 plan can only be used at schools in your home state.
Fact: You can use the assets at any eligible school around the country and abroad. That includes two- and four-year colleges, graduate schools (including law and medical), and vocational/technical schools.
Myth: You can only use 529 plans to pay for tuition.
Fact: You can use your account assets for many higher education expenses, including tuition, fees, certain room and board costs, and for 2010, computers and course-related software.
Myth: If the child doesn’t go to college, you lose your money.
Fact: Unlike other college-savings options, the owner of a 529 plan account controls the account. That means you can change your beneficiary to another eligible “member of the family” (as per plan rules) with no tax penalty.
On May 29, look for more information through “529 College Savings Days” (5-29, get it?). Among the messages: Consider giving a graduation gift of contributing to a 529 account. Companies are making it easier to ask for third-party contributions via e-mail and to give online, adds Robinson.
Learn more about the basics of the plans at www.529.com.