By Curtis M. Loftis, Jr. (originally published in the January 2019 issue of AC&E)
It’s clear that a college education is a proven investment for future success. Statistics show the more you learn, the more you earn. A college degree may result in as much as $1 million more over the life of a career than having a high school diploma alone.
In today’s fast-changing economy, a college education can provide individual financial stability and contribute to the overall economic health of a community. It’s also an expensive proposition as college tuition rates continue to rise, thus making it less accessible for some.
If a college education is a goal you have set for your child’s future, you need to start planning now to meet the cost of achieving that goal. Investing in a 529 college savings plan can provide the pathway that leads to your child’s future success.
Named after the section of the Internal Revenue Service code that established the savings plans, 529s offer many benefits that are better than using a traditional bank savings account, or even worse, dipping into your retirement funds to pay for college.
In more than 30 states and the District of Columbia, you can get a tax deduction or credit for contributions made to a 529 account. Earnings grow tax-free over the years as your child approaches college age. And once you withdraw funds, the money is tax-free when used for qualified education expenses, such as tuition, books, and room and board. I like to tell people it’s like beating the tax man three times.
Because there’s no minimum amount needed to open or contribute to an account, 529 savings plans are simple and available to anyone to open. Parents or grandparents can open accounts for their loved ones to help save for future education. Family members such as aunts and uncles, friends and even neighbors can contribute to a child’s 529 account to assist with savings and receive a tax benefit as well.
The funds can be used at accredited two-and four-year colleges as well as at technical and trade schools across the United States and in over 600 colleges abroad.
I often get asked “What if my child gets a scholarship?” Funds from a 529 plan can be used for more than tuition. You can purchase laptops, printers, calculators, books, supplies and equipment needed for your child’s coursework. Funds can also be used for student housing.
If your child’s scholarship covers everything or your child decides not to go to college, the plan can easily be transferred to a sibling for use. Or as the parent or grandparent account holder, you can make yourself the beneficiary and take post-graduate classes, professional development courses or even short-courses designed for enjoyment like pottery or basket-weaving.
Under the 2017 Tax Cuts and Jobs Act, savers can now use 529 plan funds beyond higher education. Effective January 1, 2018, parents may withdraw up to $10,000 to cover K-12 tuition at public, private or religious elementary or secondary schools. And South Carolina is one of 20 states that offer a state income tax deduction or credit when 529 savings are used to pay for K-12.
Further, the new tax law now also allows existing 529 plans to be rolled over into 529A plans, or ABLE accounts, which are tax-advantaged savings tools for individuals with disabilities. Like its 529 counterpart, investors’ contributions grow tax-free and are eligible for tax deductions or credits in many jurisdictions throughout the U.S.
One notable difference in ABLE 529s is the expanded use of funds to include assistive technology, transportation, housing, basic living expenses as well as education and job training.
This flexibility provides a vital resource for individuals with disabilities without the fear of losing their existing government benefits. It truly has created greater accessibility to a segment of the population that has long been hampered with restrictions that seemingly prevented a pathway to financial independence and security.
The real key to accessibility for higher education is to start saving right away so earnings can grow along with your child. And the dollars you save and invest now are the dollars your family won’t have to borrow when it’s time for college.
It is never too early – or too late – to start saving for your child’s future. I encourage you to check out the solution that 13.6 million American families have chosen to help ensure those they love can pay for college – a 529 college savings plan.
(Curtis Loftis is the South Carolina State Treasurer. His office administers the Future Scholar 529 College Savings Plan and the South Carolina ABLE Savings Program.)
The American Consortium for Equity in Education, publisher of the "Equity & Access" journal, celebrates and connects the educators, associations, community partners and industry leaders who are working to solve problems and create a more equitable environment for historically underserved pre K-12 students throughout the United States.