Start Saving for College Now and Avoid Swimming in Debt Later

My youngest son graduated from elementary school this week, which means both of our boys are now in middle school. Unfortunately, both of them will be attending different middle schools, which presents its own challenges, but we will worry about that once school starts back up. Being in middle school means, they are that much closer to college and thankfully, my wife and I have been working towards that day since the day they were born. Each time my wife told me she was pregnant, I signed up for a 529 the very next day.

I find it interesting that many parents are not contributing to some sort of college savings plan like the 529. Many of them do not even have a clue on what a 529 is. A 529 plan or qualified tuition plan is supported by the state in an effort to provide families with a means of saving for college. According to mayrland529.com, the plans are named after a section of the Internal Revenue Code.

There are two types of plans:

  • Savings Plans which invests your contributions much like an IRA. Friends and family can utilize Go Tuition as a means of gift giving for your child.
  • Prepaid Plans allows you to pay for college or a majority of it. Your child will be able to attend college in the future at today’s costs.

Some parents think you will be unable to acquire financial aid or attend college or universities outside of the state your 529 originates in, but those are myths. Parents can absolutely receive financial aid and for the most part your child will be able to attend almost any college regardless of the location. In addition, parents will not lose all of their money if their child gets a full scholarship. It can be transferred to a sibling, used for higher education or you will pay income tax with a penalty on the earnings should you simply withdraw the money.

 Hopefully my son will get a scholarship for music, but if not mom and dad got his back.

Hopefully my son will get a scholarship for music, but if not mom and dad got his back.

Contributions to 529 plans are tax deductible because the money used to fund the plan are post-tax dollars. Although you contribute as much as you want, plans are extremely flexible and start at just $25 a month so it is very affordable. It makes for a great strategy for financially preparing for college and it is never too late to start.

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