We recently talked about why comparisons are a sure fire way to distract you from your goal. Looking left and looking right, it makes it downright dangerous to be proceeding anywhere.
But comparing and contrasting different things can also have beneficial outcomes, especially when deciding where to place your savings for college tuition.
Yesterday, passionate students enrolled in the UC (University of California) system, protested a regents-approved tuition hike to the tune of 32 percent.
That means that in the public system of higher education, California students will now have to come up with about a third more money than they did a year ago.
I know many friends who went to UCLA and they struggled to accumulate enough change to pay for their education. Even with the help of financial aid, they still struggled mightily. Now, I’m not sure how high school seniors will face this challenge.
Shared responsibility
As a new parent, I have to think about how I am going to pay for college tuition. Though I chose to never finish my degree, I would like for my son to have the choice to go if he decided that university learning appealed to him. I have sixteen and a half years (give or take) to come up with a solution. This is going to be an expensive purchase.
Anything on sale?
The 529 education savings plan is the most prominent option for parents when it comes to paying for college. It is named after a section in the IRS tax code and it was designed to help families (like me) put money away for future college expenses. These plans are investment vehicles operated either by the state or individual educational institutions and are specifically designed and managed to help donors (me) get the most bang for their buck for their beneficiary (my son).
Does this make my butt look big?
As with most things, the right fit is very important. There are two kinds of 529 plans and one will not necessarily work for every parent.
- The PREPAID PLAN lets you do exactly what it sounds like. As a parent you can pay for part or all of the costs (tuition and fees) of public college education. Because you prepay, it allows you to lock in tuition prices so you wont have to worry about regents hiking tuition by 32% every year. These plans are usually backed by the state so most require that you and Junior are both residents of the state. They also have age requirements for the beneficiary.
- But with the SAVINGS PLAN does not have age limits. You can set one up for yourself if you wanted to. And you can contribute as much as 300,000 dollars in some plans for all (tuition, rooming, fees, books, MacBook) school expenses. Since this one is not backed by the state, you can lose your invested money in it. And you cannot lock in the tuition. Watch out for those increases.
Why buy?
Because it comes with some really cool benefits. Most notable is the fact that contributions grow in 529s tax-deferred and when the beneficiary takes money out, that’s federally tax-free too. And this kind of plan is very low maintenance. You can set up the automatic deposits and a professional will take care of the investing. Pretty cool.
In the end, this is just one in a wide array of tools that I can use as a parent to make sure that I can give my son the choice to go to school. If the odds of attaining higher education keeps rising with the costs, it is the least I can do to try even out his chances of getting ahead in life. Even if that means I have to go shopping.
(photo: sashawolff)
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