This past Thursday (5/29) was College Savings Day -- a day meant to remind parents it's never too late to make college savings a priority. The college savings vehicle of choice for many families is a College Savings 529 plan, and there are currently 84 traditional plans to choose from in the United States. As Morningstar recently noted, although returns haven't always kept up with those of other mutual funds and investments, assets in traditional 529 plans climbed to almost $200 billion at the end of 2013.
Despite the growing value of 529 plans across the country, Forbes reported that many parents still won't have enough money to cover their expected contribution to their children's higher education. In fact, according to Forbes, the average American family is currently on track to meet only a third of their savings goal. Unfortunately, the problem only stands to become worse, as college costs continue to rise. And that's part of the reason College Savings Day was born - to remind families that even small contributions to a College Savings 529 plan can make a difference.
Forbes has plenty of advice for families who are starting to plan for college. For starters, they recommend actually opening a 529 plan -- not just thinking about it -- and possibly a traditional savings account, as well. Second, they suggest that parents make their contributions automatic. Another suggestion includes asking family members to make 529 contributions in lieu of traditional gifts for birthdays, graduation, or other holidays.
As Daily Finance recently noted, there are many reasons a College Savings 529 plan might be the best option for many families. For starters, 529 plans offer several tax advantages, including the fact that the money you contribute is allowed to grow on a tax-deferred basis. Furthermore, money that builds up in a 529 plan becomes essentially tax-free if spent on qualified educational expenses such as college tuition, books, or required fees.
Having a hefty sum saved in a College Savings 529 plan may also pay off when it comes to student aid, explained Daily Finance. Since 529 plans are generally considered an asset of the parent and not the child, the money you've saved won't count against your child when it comes to applying for loans or assistance.
The overall increase in the use of 529 plans may be attributed to improvements that have taken place throughout the years. According to Daily Finance, 529 plans used to be cumbersome to use, with few investment options and high fees. Fortunately, fees have come down over time, and investment options have increased substantially.
All of these reasons make College Savings 529 plans an attractive option for parents. And, thanks to College Savings Day, millions of parents all over the country were reminded that it's never too late to start saving.
Compiled by Holly Johnson
"529 Plans: 4 Reasons They're Great; 1 Day to Consider Them," Daily Finance, May 29, 2014, Dan Caplinger, http://www.dailyfinance.com/on/529-plans-advantages/
"529 Plans Continue to Make the Grade With College Savers," Morningstar, May 29, 2014, Kathryn Spica, CFA, http://news.morningstar.com/articlenet/article.aspx?id=649222&SR=EVZ128
"It's College Savings Day: Are You Saving Enough For Your Children's Education?," Forbes, May 29, 2014, Robert Farrington, http://www.forbes.com/sites/robertfarrington/2014/05/29/happy-college-savings-day-are-you-saving-enough-for-your-childrens-education/