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Planning for Growth: All About 529 Plans. Starting Early.

Planning for Growth: All About 529 Plans. Starting Early.

March 08, 2016

Have a child who is college bound? Spring is the perfect time to do a financial check regarding your savings for their college education.

It doesn’t take a Rhodes scholar to know that college is expensive. Not only can the upfront costs be daunting, but so can the resulting debt. And with college tuition increasing on average by 3.7 percent for private schools, and 2.9 percent for public institutions in 2014-2015,1 there appears to be no economic relief in sight for those seeking higher education.

However, there are savings strategies that can help mitigate the high costs of college and make students less susceptible to long-term debt later in life. Educate yourself with the following suggestions to help keep your child’s college career from breaking the bank, whether now or in the future.

Start saving for college early.

Unless you’re miraculously given a hundred grand for your child’s college education, which more than likely won’t be the case, your best tactic toward paying for college without suffering from long-term debt is to start saving early.

Begin this process by putting a little bit of money away with each paycheck. It’s also a good idea to know what sort of school your young scholar might want to go to, and the amount an education will cost at that school.


Use education savings plans to your advantage.

American families who are saving for higher education expenditures have more options available to them than ever before. There are accounts that now exist that make it easier for you to save for your child’s education. Plus, these accounts have tax benefits, which will help your money to accumulate and grow over time.


Start a 529 plan.

529 plans first began as state operated college savings plans in the 1980s. By the mid 1990s, they had gained popularity and there were efforts by congress to establish a tax-exempt status for prepaid tuition plans. This resulted in the creation of Section 529 of the Internal Revenue Code (IRC).

529 plans are similar to a 401(k) or IRA in that they have the potential grow tax deferred, and when the time comes for a beneficiary to make college payments, distributions for qualified expenses can be made tax-free. Your state may offer additional tax benefits, so be sure to do your research. In most cases 529 plans give you complete control of where the account is invested, though some may have restrictions. Another advantage is you can refund the money back to yourself if your child’s college plans change, though the distribution will be subject to a 10% penalty on the earnings portion of the assets. The greatest limitation to a 529 plan is it can fluctuate according to market changes.


1Tutorial – “The real cost of higher education,” The College Board®, 2014-2015.

Information regarding 529 plans is general in nature and is not intended as legal or tax advice. Neither Transamerica Financial Advisors, Inc. nor its Representatives may offer tax and/or legal advice.  While investing in college savings plans allows for the opportunity for growth, they do come with risk.   You may lose money or it may not grow enough to pay for college since the rate of return and principal value of the underlying investments will fluctuate.  Also, unlike prepaid tuition plans, they don’t lock in tuition prices.  There various fees and expenses associated with 529’s which vary among plans.  You should review the offering document carefully for complete details. 529 plans are complex and the federal and state laws or regulations on which they are based vary for each type of plan and are subject to change. In addition, some products, investment vehicles, and services may not be available or appropriate in all workplace savings plans. You may wish to seek the advice of legal counsel or a tax professional to address your specific situation.