Saving for college will be one of the toughest challenges parents will face among the many in raising kids and preparing them for college.
Your strategy for financing a college education should consist of many options that you have available to you. College scholarships being my obvious favorite can be the most successful method. Preparing your kids early for college will actually be preparing them to be successful at winning many scholarships.
Part of your strategy can be saving money for school using the 529 College Savings Plan.
What is the 529 College Savings Plan?
It’s a plan that allows you to earn tax exempt interest on the principal invested in the plan as long as the funds are used to pay for qualifying college expenses.
You’ve probably heard of the 529 College Savings Plan or maybe you even looked into the plan as a way to save money for college.
It’s certainly worth exploring and understanding the plan in simple terms can help you decide if it’s worth the benefits it proposes to offer.
Is the 529 Plan a good way to help to help you find money for college? No...but the 529 plan is a good way of saving for college.
Should it be a part of your overall plan to finance you or your child’s way through college some day? Absolutely...but it depends on your individual financial situation.
The plan works if you enroll in the plan at the same time your child is born and you invest in the plan on a monthly basis without interruption until your child turns 18 years old and is ready for college.
Let’s take a look...
Let’s say at the time your child is born you’re going to save $125 per month every month for the next 18 years.
Let’s assume the annual interest rate is .75%.
At the end of 18 years you’ll have saved $28,917 which is equal to the average cost of tuition for your average state university. This doesn’t include all the other expenses that go along with college living.
So if you want to have the money for college to pay for all 4 years, then you’ll need to save $500 per month for 18 years.
Here’s the reason the 529 plan is just a part of the strategy for finding money for college.
The average American family has neither the discipline to make these regular and consistent investments into the plan nor the extra income to be able to sustain that level of investment for 18 years.
With this in mind, you’re left with the question...Is the plan something I should take advantage of?
It is if you live in the state that offers a plan suited for your individual circumstances, because in some cases, the plan may be no better than a typical savings plan. Even with the tax benefits.
Before you can decide if it’s something you should do you need to investigate the rules of the plan for the state that you live in.
The best way to do this is by visiting state-sponsored 529 savings plans. This will get you the information you need to make a good decision.
REMEMBER...saving for college is only a part of the plan for financing the cost of college. With the spiraling increases in the cost of higher education, a better plan is needed.
Early planning and a good strategy for winning college scholarships is the best plan anyone can have for winning the most free money for college without having to depend heavily on student loans.
In some cases, you may not even need any student loans at all if you start early and follow our guide to winning college scholarships and grants.