BOSTON — Many families are trying to figure out how to pay for college as costs for tuition, fees, room, and board continue to surge. According to the National Center for Education Statistics, tuition and fees are up by 65 percent since 2000.
“A lot of people are wondering whether it’s worth it,” says Martha Kortiak Mert, COO of the website SavingForCollege.com.
Kortiak Mert says 529 investment plans are a great way for parents to begin saving for their children’s future education. Similar to an IRA or 401k retirement plan, 529 plans allow investors to contribute money and see their investments grow over time.
“You can make withdrawals tax-free as long as it’s being used to pay for qualified education expenses,” Kortiak Mert says. “That includes things like tuition and fees, room and board.”
While many parents may open a 529 account for their children, adults can also open one for themselves if they’re considering going back to school or working towards a professional certificate.
“If you save $100 a month for 18 years... you’re going to end up with about $43,000 in 18 years,” Kortiak Mert says, assuming an average annual return of about 7% on your investment.
If your child’s plans change and college is no longer in the picture, the money can be used tax-free for technical and trade schools, as well as certified apprenticeship programs.
Parents also have the option to change the name of the beneficiary, essentially transferring the account to another child or grandchild.
“Worst case, the money is yours,” Kortiak Mert says. “You can withdraw it at any time.”
Just be aware that you’ll pay taxes on the account’s financial gains if you withdraw funds for anything other than education costs.
Consumer advocates say 529 accounts can also help lessen the burden of student loans. According to the Education Data Initiative, the average student loan debt in Massachusetts is almost $35,000.
“It’s also sets a psychological message that you can send to your child,” Kortiak Mert says of 529 plans. “It says, ‘Look, I’m setting this money aside specifically for your education.’ And that’s a conversation you can start having early.”
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