Guidance counselorsYour students turn to you for help with their futures. But if they or their parents don't have the funds for college, community college, or vocational/technical school, their options can be severely limited.
Good news! It's never too late to start saving for higher education. With a 529 plan, families can start saving little by little.1 The more they save, the less a student may have to borrow.
Borrowing versus saving
Most families combine some level of savings and borrowing when paying for college. Putting aside money on a regular basis while the student is in high school can help reduce the amount of future debt.
If a freshman's family could invest $200 a month1 (with a hypothetical investment return of 5%), in the four years leading to high school graduation, that family could potentially save $10,647 for the student's higher education. That's $10,647 less that the student will have to borrow to afford school.2
You can help families prepare for higher education costs
Here are some suggestions that you can make to students, parents, and grandparents who are struggling to save for higher education. Investing for three or four years may not sound like a lot of time, but a 529 plan offers tax advantages that can potentially make their money go further:
- Tax-deferred earnings: Money in the account can work harder than in a similar taxable account.
- Tax-free qualified withdrawals: Families don't have to pay federal taxes when the 529 plan assets are used for qualified, school-related expenses.3
- State tax advantages: Many states offer income tax incentives on contributions to their state-sponsored 529 plans.4
- Gift tax benefits: Account owners and others can contribute $13,000 (single)/$26,000 (married, filing jointly) in a single year without incurring gift taxes.
Use celebrations to save even more
Once a parent, guardian, or grandparent starts a 529 plan account there are other strategies they can use to boost their savings.
- Make saving automatic: If parents or grandparents can set up an Automatic Investment Plan, they can put their savings on autopilot. Little by little, those payments can potentially add up.1
- Don't go it alone: If the 529 plan they choose allows third-party contributions, why not ask relatives and friends to make gift contributions for birthdays, holidays, or even graduation? Ugift® - Give College Savings lets account owners send online invitations to family and friends requesting 529 plan gift contributions. This innovative online program is available in connection with several 529 plans administered by Upromise Investments.
- Make the most of everyday purchases: How about programs that let families earn money on their purchases? Upromise® is a free service that lets you earn college savings on eligible everyday purchases: shopping online, dining out, and much more.5
1 A plan of regular investment cannot assure a profit or protect against a loss in a declining market.
2 This hypothetical illustration does not represent the return on any particular investment. Investment returns are not guaranteed and you could lose money by investing in the Plan. This hypothetical illustration does not represent the availability of the rate.
3 Qualified withdrawals include: tuition, mandatory fees, books, supplies, and equipment required for enrollment or attendance; certain room and board costs. Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
4 You should consider before investing whether your or the beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program.
5 Upromise is an optional service offered by Upromise, Inc. and is separate from the 529 plans administered by Upromise Investments. Specific terms and conditions apply. Participating companies, contribution levels, terms and conditions subject to change without notice. Subject to minimum transfer amounts.
