With college costs climbing faster than the general rate of inﬂation, many parents feel the pressure of saving for their children’s education. Many parents don’t want to see their children saddled with debt when they graduate from college, but spiraling costs and “easy credit” have result in student loan debt in excess of $1 trillion.
One of the programs that allow parents (and grandparents) to save money for college is a “529 plan.” A 529 is a tax-advantaged plan operated by a state or educational institution designed to help families set aside funds for future college costs. Created in 1996, it’s named after Section 529 of the Internal Revenue Code.
College savers typically have about 18 years if they start early to save for college. Finding the right balance of investments in a 529 depends largely on the child’s age and your tolerance for risk. If the child is young, the focus should be on growth and growth-an-income funds according to experts. As the child gets older, the portfolio should become more conservative since there is less time to recover from a market downturn.
Each state sponsors its own 529 plan which differ in the investments they offer. Some states also offer a modest tax benefit to those who contribute to 529 plans. For more details, consult your RIA or check your state’s website for more information.