NASHVILLE, Tenn. (WTVF) — If you've got kids, you know how expensive they can be. One of the biggest expenses? College.
So how do you pay for it?
If your child has a few more years before they head for college, you might want to invest in what's known as a 529 College Savings Plan. It can definitely help cover those college costs. But there are some things to keep in mind before you withdraw any of the money.
“A 529 plan is one of the best ways that you can save for college. It’s a state-sponsored investment plan that allows you to save for your kids’ college education no matter how far into the future,” said Consumer Reports Investigative Reporter Lisa Gill.
But many families don’t take advantage of this opportunity. In fact, only 30 percent of families used a 529 account to help pay for college this year, according to a 2023 study by Sallie Mae.
One of the benefits of a 529 savings plan is that since the money saved is invested, it has the potential to multiply over time.
For example: if you opened a 529 account for a newborn this year and contributed about $250 a month, you’d have more than $113,000 when your child heads off to
college in 18 years. That’s more than double your $54,000 investment.
“One of the greatest things about it is that the money grows tax-free, and many states even give you a tax deduction," Gill said. "And if you get a later start, that’s ok, it’s still less money that you’ll take out as a loan later on.”
The money from a 529 account has to be used on qualified education-related expenses like tuition, fees, books, supplies, computers and room and board, as long
as the student is enrolled in school.
A few things to keep in mind - You need to spend the money in the same tax year,
not school year, that you make the withdrawal.
And be sure to keep all your receipts in case the IRS has questions later!
And if you’re lucky enough to have leftover 529 funds, avoid taxes and penalties by saving it for graduate school or transferring the money to another child or family member!
Consumer Reports says you can even use 529 money towards tuition for students in kindergarten thru 12th grade, but only up to 10-thousand dollars per student,
per year.
