By Tom Rowley, Director, Retirement and Education Strategies on Feb 1, 2019, in Retirement
According to US News & World Report, 80% of New Year's resolutions fail by February.1 The problem? Many people set overly ambitious resolutions with no tangible action plan to reach their desired goals - and as the old saying goes, "A goal without a plan is just a wish."
For a New Year's resolution that sticks, you've got to get specific. Consider saving for college. Each year, many parents pledge to save for their children's higher education but quickly find they're not sure how to get started. I believe opening a 529 plan is the first step to turning that overwhelming savings goal into an achievable resolution that could pay off for years to come. Here's why:
- Tax-advantaged growth.1 The earlier you start saving for college, the more your savings can grow. Investments in a 529 plan are tax-deferred, so savings can accumulate over any time frame - whether your child is an infant or a high school student. Qualified withdrawals are tax-free as well, making 529 plans a smart option for accruing meaningful savings.
- Availability. 529 plan funds can be used at eligible public or private undergraduate and graduate universities, community colleges, or vocational trade schools. In some states, up to $10,000 per year can also be used to pay for K-12 expenses at elementary or secondary public, private or religious schools.
- Flexibility. Some college savings funds impose strict restrictions on income limits, maximum investments and beneficiary changes. 529 plans are comparatively flexible, with no restrictions on age (unless imposed by the program), income or beneficiary transfers. Learn more about the different kinds of college savings plans.
- Customized portfolio options. A one-size-fits-all approach doesn't work for college saving. Thankfully, many 529 plans offer a variety of age-based portfolio options that align with your child's expected college enrollment date. These portfolios are designed to help outpace rising higher education costs, with allocations gradually becoming more conservative as the enrollment date gets closer.
- Greater control. 529 account owners maintain complete control over the timing and amount of fund withdrawals. And, since distributions can only be applied toward qualified educational expenses, you'll enjoy the peace of mind that those hard-earned funds are being used as intended.
So, how can you get started with a 529 plan? First, determine how much you need to save. There are many great tools out there (like this college savings calculator) that let you estimate how much your child will need for college. Simply plug in their age and the type of college education (for instance, a public two-year school versus a private four-year school). Next, contact your financial advisor. He or she can help you find the 529 plan that best fits your family's needs and savings time frame.
Make 2019 the year you started saving for higher education, and come next year, you'll have one less resolution on your list!
1 Source: J. Luciani, "Why 80 Percent of New Year's Resolutions Fail," Dec. 29, 2015
Blog header image: Ev/Unsplash
Before you invest, consider whether your or the beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state's qualified tuition program.
For more information about CollegeBound 529, contact your financial advisor, call 877-615-4116, or visit www.collegebound529.com to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing. Invesco Distributors, Inc. is the distributor of CollegeBound 529.
1 Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.