When I see college graduates celebrating their achievement, I can’t stop wondering about all the loans many will be paying off for years to come.
But I’m also relieved that my husband and I set up 529 plans for our children.
This is why I’m celebrating 529 College Savings Day on May 29 (get it, 5/29?). The best thing is, I don’t have to buy a greeting card.
Nevertheless, I was surprised to learn that most people aren’t aware of this vehicle to save for college, even those who are likely to have the income to make this investment. For the past three years, the financial firm Edward Jones has commissioned a survey to gauge what Americans know about 529 plans (named after Section 529 of the Internal Revenue Code).
In 2012, 37 percent of respondents correctly identified a 529 plan from among four potential options. Some thought it was a retirement account, a form of life insurance or a low-cost health-care plan.
Only 30 percent of survey participants could correctly identify what a 529 plan is about, and the awareness is dropping. Among those with a household income between $50,000 and $75,000, awareness was only marginally better at 32 percent. The awareness level increased when income increased, but it still wasn’t as high as it should be. Forty-two percent of households with income between $75,000 and $100,000 could identify a 529 plan, and 48 percent of Americans making more than $100,000 answered correctly.
Here’s how the prepaid and savings plans work. The advantage to the 529 plans is that its earnings are not taxed if the funds are used to pay for qualified college expenses. In most cases, earnings are also free from state and local taxes. There are no income limitations on who can contribute to an account. And I particularly like this feature — the account owner controls the money.
A prepaid tuition plan allows you to pay a child’s tuition in advance. The point is to lock in for tomorrow at today’s rate. However, be careful about funding a prepaid plan and thinking you are done. It covers only tuition and fees. What if your child wants or needs to live on campus? Room and board alone can be as much as tuition.
Source: Washington Post