Dreaming of a good career but one thing that emerges as the stumbling block for the students is opting for the right area of study amid the skyrocketing educational fees in the colleges and varsities.
The cost of tuition has increased manifold in the last 30 years. According to Bloomberg, college tuition fees have increased 1,100% since 1978. Making the situation worse, the trend refuses to die down. According to The College Board, tuition costs are up another 4.2% in 2013 at private colleges and 4.8% at public universities.
The skyrocketing tuition expenses and comparatively low income are creating big financial challenges for families and individuals desiring for higher education in the United States. Ironically, the US families, who are burning their pockets to satisfy the education demands, have failed to take benefits of the “tax-advantaged investment account”-The 529 plan of the US government.
[box_dark]What is 529 plan?[/box_dark]
A 529 plan is a tax-advantaged investment account offered in the United States that encourages savings for education expenses by providing big tax benefits. The plan is so designed in a bid to encourage the citizens to save more for future college tuitions.
There are two kinds of plans:
Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Although states administer savings plans, record-keeping and administrative services for many savings plans are usually delegated to a mutual fund company or other financial services company.
Prepaid plans allow one to purchase tuition credits at today’s rates to be used in the future. Therefore, performance is based upon tuition inflation. Prepaid plans can be administered by states or higher education institutions.
Prepaid plans Vs Savings plans
Prepaid tuition plans generally allow college savers to purchase units or credits at participating colleges and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements. Many state governments guarantee investments in pre-paid tuition plans that they sponsor.
College savings plans generally permit a college saver or account holder to establish an account for a student (the “beneficiary”) for the purpose of paying the beneficiary’s eligible college expenses. An account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder.
Another benefit associated with 529 Plans is the ability to transfer unused amounts to other qualified members of the beneficiary’s family without incurring any tax penalty.
Qualified members of the beneficiary’s family include the beneficiary’s
• Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them.
• Brother, sister, stepbrother, or stepsister.
• Father or mother or ancestor of either.
• Stepfather or stepmother.
• Son or daughter of a brother or sister.
• Brother or sister of father or mother.
• Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
• The spouse of any individual listed above.
• First cousin.
How to enroll for 529 Plan?
Getting yourself enrolled in a 529 plan is simple. The plans are offered through many financial services companies. To get yourself enrolled you just need a simple enrollment application. The management of the account is handled by the state treasury office or by a third-party investment management company based on the account-holder’s risk profile. Account holders do not receive a 1099 to report taxable income until withdrawals are made. Account holders have the option to adjust their investment mix or roll into another state’s plan every 12 months.