New 529 Plans Buy Education Options

Ray’s Take: Did you know that back in 1870 you could attend Harvard for a mere $150 per year, and for half that amount, you could attend Brown University? According to Best Colleges, college costs began to rise in the 1970s at a rate much higher than inflation, and this hasn’t slowed down.


If you have children or even your own desire for a higher education, the price of college tuition this day and age can be staggering and downright depressing. Many Americans find themselves wondering where they will come up with the funds to pay for it without incurring large amounts of debt.


In the 1990s, 529 plans were introduced to help parents save for increasing higher education costs. Last year, the Tax Cuts and Jobs Act had some interesting news for parents. For the first time, 529 plans are eligible to be used for K-12 private school tuition. This simple change will have a significant impact on how a large number of Americans will approach their strategy for education funding.


Families with children in private or parochial schools will be able to tap their college savings plans to pay for up to $10,000 in private school tuition. Before using this approach, consider what’s most important to you – K-12 education or college.


Either way, money buys options, and the sooner you start the better off you will be.


The new tax for custodial accounts for kids under 18 is pretty unfriendly, but there is still a place for them since they have flexible terms for distribution. For example, if your child needed a car while at college, you’re out of luck with the 529s but a custodial account could be used for the purchase.


Also, if there are leftover custodial savings, this could be used to help your college graduate start off with some money in the bank. Leftover 529 funds are much more complicated.


Consult with a trusted financial adviser before considering these savings options.


Dana’s Take: With a child in college now, we have experienced planning and saving for college expenses. Now, we are learning about add-on expenses that were not included in the budget. Did you know if a student doesn’t like their grade in a college class, they can retake it at a community college and try to improve their grade? Further, a whole new category of student has emerged since our college days, known as a “super senior,” a college senior who returns for a second year.


Fortunately, with part-time and summer jobs, students can build an emergency fund to cover all these extra expenses. Students can research the costs of retaking classes, summer travel and even funding a “super senior” year. Students can even start building their college emergency fund while still in high school.


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