A record 3.3 million students are expected to don caps and gowns this year and collect their high school diplomas.1 Predictably, this mass of educated humanity is crowding the college admissions process. For many applicants, even top students, the race to get into their colleges of choice has become the race to get into any college.
It doesn’t look as though the student population will dwindle much over the next 18 years. The U.S. birth rate between 1990 and 2006 (see chart) was fairly level. Roughly 4.6 million children were born in 1990 (today’s 18-year-olds) compared with 4.7 million born in 2006 (today’s two-year-olds).2 The birth rate dipped slightly during the intervening years, but not by much.
Are you prepared for the possibility that the students in your family may have to widen their search for higher education? One way to help keep their options open is to ensure that money is not a barrier to getting into a good school. It would be a shame to land a coveted spot in a quality school only to find that the tuition or living expenses were beyond your family’s means.
The Power of Tax Freedom
A Section 529 savings plan might help make the difference. These state-sponsored plans are designed to help families save for future higher-education costs. Any investment earnings in the account accumulate on a tax-deferred basis. Contributions and earnings can be withdrawn free of federal income tax, provided they are spent on qualified higher-education expenses, including tuition, fees, room and board, and school supplies.
Family members who want to contribute to a 529 plan can contribute up to $12,000 per year (or $24,000 for a married couple) per student without incurring gift taxes. It’s also possible to contribute up to $60,000 (or $120,000 for a married couple) in a single year, as long as no other gifts are made by that person to the student for five years.
As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments.
The tax implications of a 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.
Before investing in a 529 savings plan, please consider the investment expenses, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.
1) San Diego Union-Tribune, January 30, 2008
2) HS Dent Foundation, 2008
This material was written and prepared by Emerald Publications.
© 2008 Emerald Publications