Few would argue that one of the best ways of securing a bright future is getting a college degree. While getting a degree is a great investment, the cost of higher education can be steep. In fact, once newly minted graduates enter the working world, they're often burdened with high student loan debt.
For a private four-year college degree, the average tuition rate is more than $29,000 per year for students, according to The College Board. This may help explain why there's more student loan debt in the U.S. than there is credit card debt, according to a recent report from the Federal Reserve Bank of New York, reported by The Washington Post.
Costly though it may be, tuition and room and board shouldn't be something that prevents anyone from pursuing their goals, which are that much more attainable with a college diploma.
You can help your grandchild or loved one to reduce this burden through a 529 plan.
What, exactly, is a 529 plan?
A 529 plan is an investment account that's tax-advantaged, making it ideal to look into with tax season underway. With 529 plans, families can help pay for tuition, books and other qualified college expenses at most accredited colleges, universities, and vocational and technical schools nationwide. Additionally, 529 plan contributions can grow federal income-tax free.
As with any savings strategy, contributing to a 529 plan on a regular basis is perhaps the best way to build the nest egg that can help pay for higher education. But what makes 529 plans so advantageous is how the rate of interest can accrue compared to other investments.
For example, imagine a plan in which $100 is contributed each month, with a 5% annual growth rate and a tax rate of 30%. In the amount of time it takes one to save $30,000, a 529 plan has the potential to outdo it by as much as $5,000. This is aided by the federal income-tax free status. This is a hypothetical example for illustrative purposes and does not predict 529 account investment performance.
With some state plans, you can start a 529 plan for as little as $25. Some states may even provide tax credits for contributions.
Additionally, 529 plans are flexible. You can help build a nest egg for your child or grandchild over time that can help fund the cost of higher education and reduce the need for borrowing.
Investment experts can help you manage a 529 plan. For more information, visit www.AARPcollegesavings.com or speak with a TIAA-CREF professional today at 866 717-9452.
The AARP College Savings Solutions from TIAA-CREF is provided by TIAA-CREF not AARP or its affiliates. TIAA-CREF pays a royalty fee to AARP for the use of its intellectual property. These fees are used for the general purposes of AARP. AARP does not employ or endorse TIAA-CREF associates. Offers are subject to change and may have restrictions. Please contact TIAA-CREF directly for details.
The tax information contained herein is not intended to be used, and cannot be used, by any taxpayer for the purpose of avoiding tax penalties. Taxpayers should seek advice from an independent tax advisor based on their own particular circumstances. Non-qualified withdrawals may be subject to federal and state taxes and the additional federal 10% tax. There may also be state penalties for non-qualified withdrawals.