Investing in Our Future
Parents generally don’t have to be convinced of the value of a college education for their children. Studies show that college graduates not only earn more but are healthier, more satisfied with their jobs, and more likely to remain employed during tough economic times.1
But paying for college becomes more challenging every year. Over the last decade, undergraduate in-state tuition and fees at four-year public colleges and universities rose at a 5.6% average annual rate above the rate of general inflation. For the 2011–12 academic year, the average cost of tuition, fees, room, and board reached $17,131.2
Private institutions are even more expensive, although their costs are rising at a somewhat slower pace. For the 2011–12 academic year, the average cost for tuition, fees, room, and board was $38,589 at nonprofit four-year colleges and universities.3
A Tax-Advantaged Savings Plan
As with saving for retirement, the key to saving for a college education is to develop a strategy and make regular contributions. One helpful savings vehicle is a Section 529 plan — a state-sponsored or college-sponsored program designed to help families save for future higher-education costs. Each plan has its own rules and restrictions, which can change at any time.
The money in a 529 savings plan accumulates on a tax-deferred basis and can be withdrawn free of federal income tax as long as it is used for qualified education expenses at accredited post-secondary schools, such as colleges, universities, community colleges, and certain technical schools. Qualified expenses include tuition, fees, room and board, books, and other supplies. Section 529 plans feature high contribution limits (set by each state), and there are no income restrictions for donors.
As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. The tax implications of a 529 plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers.
A college education could be an important investment in the future. If you anticipate paying for college, you might develop your savings strategy sooner rather than later.
Before investing in a 529 plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses — which contain this and other information about the investment options, underlying investments, and the investment company — can be obtained from your financial professional. You should read this material carefully before investing.
1–3) The College Board, 2010–2011
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate.
Christopher A. Perme is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, Inc. Member SIPC. Supervisory Office: 1660 W. 2nd Street # 850, Cleveland, OH 44113. 216-621-5680.