It seems that one minute you're changing diapers, and in the blink of an eye, your child is learning how to spell their name. Before you know it, that name could be on a college degree or apprenticeship completion certificate. For many parents, determining how to pay for their child's K-12 and college education can be daunting, but starting early can help.
How to Save for College
A recent review of 529 plans by the Education Data Initiative found the nearly 16 million 529 accounts across the nation amount to more than $457 billion dollars saved for education. If you've never heard of a 529 plan, it is a tax-advantaged education saving and investment account. The money contributed to the account grows tax-free when it's used for education expenses such as college expenses like tuition, a computer, books, K-12 tuition, apprenticeship programs, and more. Recent legislation also provides that, starting in 2024, funds left in a 529 account can be rolled to a Roth IRA for the Beneficiary.
The Education Data Initiative found 54% of parents were unaware of 529 plans. "Educating families about the benefits of saving for a child's education with the NC 529 Plan is an important part of our mission," said Laura Morgan, Vice President of Communications, Savings, and Legal Affairs at College Foundation, Inc. (CFI). NC 529 Accounts are a meaningful way for parents and grandparents to help provide a bright future for the students in their lives."
Matthew Patrick, a senior manager at CAPTRUST, adds, "When saving for any goal, the earlier you begin, the more manageable the journey is along the way. A roadblock for some 529 investors today is the concern that unused funds cannot be transferred from these accounts without incurring taxes and a penalty. Removing this roadblock in the future is a great incentive to get families saving and investing for education early." Once that investment decision is made, "The NC 529 Plan offers a variety of investments, including age-based "set it and forget it" options and individual options that allow families to customize their investments to best match their risk tolerances and goals," says Morgan.
Patrick says, "This is exciting news for anyone looking to save for education expenses. The ability to convert unused education savings to retirement savings provides greater peace of mind that an individual's saving efforts will still benefit the ones they care about most."
An NC 529 Account only needs an initial $25 investment to get started. After that, account Owners and, thanks to the new gifting links, friends and family can make one-time contributions for birthdays, holidays, or regular contributions. Many employers even offer a payroll deduction option to immediately deposit funds into an NC 529 Account from your paycheck.
When to Save for College
Morgan says the best time to save is now. Even if your child is older, it's never too late to start saving. Considering that the average price tag of higher education is continuously increasing, it's important for families to be aware of the tax advantages and investment opportunities afforded by a 529 account.
"We encourage parents to start planning and investing for college expenses as early as they can, even if they start small," said Morgan. "The NC 529 College Savings Calculator is a great tool to help parents estimate how much their child will need to cover the cost of college. Parents can enter their child's age, a specific college, or just select in-state or out-of-state public or private schools, and how much they can contribute each month. The calculator helps give families a better picture of the future cost of college based on the child's age and current trends and will help them determine how much they should save with an NC 529 Account."
Encourage Family and Friends to Invest
Many parents rely on friends and family for support in all areas of raising a family. And preparing for college doesn't have to be an exception. Throughout your child's lifetime, contributions to their NC 529 Account can be made by anyone. NC 529 contributions can be a great gift for holidays, birthdays, or just because. The best news is that NC 529 has a new gifting option that makes it even easier for anyone to contribute to a child's account. As the funds within the account are invested, a $25 annual contribution from Aunt Marie can become much more and be used for books or other school supplies.
"So many people are invested in your child's future, and now it's easier for them to help by investing in their education. Now is a great time to start planning for the future together," said Morgan.