Saving For College Early

Students walking into college
By Greenpath Financial Wellness

As parents, you might never feel ready to watch your children leave home and head off to college for the first time, but one thing you can be ready for is ensuring that they are financially set for this new chapter of their life. Starting a college savings plan now will help you tremendously in the long run and allow you to take in every moment of the experience without the stress of money creeping in.

A plan many families explore is the 529 savings plan — a tax-advantaged option designed to encourage saving for future college costs.

The earnings you accumulate in a 529 savings plan are not federally taxed, and in most cases, they are not state taxed when used for qualified higher education expenses. Many states even offer to match grants your student receives as an incentive for investing in their 529 plan.

Once you set up an account, you can choose what type of investments best fit your goals.  Investment options often include stock mutual funds, bond mutual funds, money market funds, and age-based portfolios.

There are two types of 529 plans: prepaid tuition plans and college savings plans. Listed below are the major differences between each plan.

Prepaid Tuition Plans

    Locks in tuition prices at eligible public and private colleges and universities.

    All plans cover tuition and mandatory fees only. Only some plans allow you to purchase a room and board option or use excess tuition credits for other qualified expenses.

    Most plans set lump sum and installment payments based on beneficiary age and the number of years of tuition purchased.

    Many state plans are guaranteed or backed by the state.

    Most state plans have age limits.

    Most state plans require either the funder or student to be a state resident.

    Most plans have a limited enrollment period.

College Savings Plans

    No lock on college costs.

    Covers all "qualified higher education expenses," including tuition, room and board, books, etc.

    Many plans have contribution limits in excess of $200,000.

    No state guarantee. Most investment options are subject to market risk that may increase or decrease in value.

    No age limits.

    No residency requirement.

    Enrollment is open all year.

Keep reading to learn more about 529's and how it can help you start saving today.

Telhio's Investment Team can give you personalized, one-on-one advice on the best options for your specific saving goals.

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