If you were fortunate, your parents wrote a big healthy check toward your college expenses and provided you with sound advice during your time in college. However, if you were not so lucky, you may have been dropped off to college with only sound advice! And we all know, sound advice doesn’t pay for college!
But know, you can change the cycle. Whether you are a parent, expecting or just merely dreaming of your future offspring, it is no greater time than now to begin investing in your children’s future. There are many steps you can take toward saving for your children’s education. Now more than ever, it is important to take advantage of tax-advantaged accounts that may be available to you. Consider these education saving vehicles:
Section 529 Plan
A section 529 plan allows earnings to grow tax deferred and distributions for the purpose of paying education are tax-free. States and eligible institutions provide 529 plans. A 529 plan could be either a prepaid or a contribution plan.
The key advantages of the 529 plan, the earnings grow tax-free and the contributor may be eligible for a state deduction. Also, say for instance, Junior decides to follow his dreams and become an NBA player, all isn’t lost! You can request to change the beneficiary to another child. Keep in mind, as long as expenses are utilized for qualified education expenses you are not taxed, however funds utilized for other reasons may be subject to penalties.
Louisiana has a great 529 plan that not only allows for state deductions but also matches your contributions.
A Coverdell Education Savings Account (ESA) provides another option to save for college. An individual is able to contribute $2,000 (2014) per individual towards college funding. Although the contributions are not tax deductible, just as 529 plans, earnings grow tax free if used toward educational purposes.
The key advantage of Coverdell ESAs are the account could be used for elementary and secondary education.
Even if you save a small amount, stash something away consistently to pay toward the cost of college for your loved ones or yourself. You will be amazed how this money can really add up!
Remember: your choice, your future!
Kemberley Washington is a certified public accountant and a business professor at Dillard University. She is the author of The Ten Commandments to a Financial Healing.