CNBC’s Sharon Epperson joins ‘The News with Shepard Smith’ to discuss how parents can use 529 plans to pay for college and allow their children to graduate debt free. For access to live and exclusive video from CNBC subscribe to CNBC PRO: [ Ссылка ]
How to use a 529 plan to save for college
Many financial advisors recommend a 529 plan as a way to earmark a savings account specifically for education costs. Yet a new survey shows nearly two-thirds of Americans cannot correctly identify a 529 plan as an education savings tool — and only one-fifth of U.S. parents report they have saved, or are planning to save, for their children’s education — or their own — using a 529 plan.
As total student loan debt in the U.S. has surpassed $1.7 trillion and the average cost of attending a private college jumped to $37,650 for the 2020-21 school year, there seems to be a disconnect for many parents between the cost of higher education and how to pay for it, experts say.
“Some people are reaching the end of their lives still not sure how to pay [student loan debt] back, and ... many people are unfamiliar with one of the most effective ways to save,” said Roberts, author of “Route 529: A Parent’s Guide to Saving for College and Career Training with 529 Plans.”
With a 529 savings plan, earnings grow on a tax-advantaged basis, and when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books and room and board. Plus, you often will get a state tax deduction or credit for contributions.
Those aren’t the only reasons many parents find a 529 plan a good way to save for college. Reducing the amount of money students will have to borrow to pay for college is a big consideration.
Figure out your reason for saving before you begin putting money away, Roberts said. “Start with your ‘why,’” she said. “We started with our desire to have a better outcome for our son than we had.
“We borrowed over $100,000 for our undergraduate and law school degrees, and it took us more than 20 years to pay that back.”
Roberts and her husband, Anthony DiFilippi, started funding a 529 plan for Ben — now 21 — when he was a baby. “We knew firsthand what it felt like to be having to pay back that money,” she said. “We really felt so strongly that we did not want the same experience to be what our son encountered.”
How did they crack the code to be able to save regularly?
As soon as Roberts returned from maternity leave to her job at a financial services company, the couple started making regular contributions to a 529 account with each paycheck “We adjusted our lifestyle,” said Roberts, who has driven the same car for over 20 years. “As a family, we looked at our expenses, and we realized how much we could save had an awful lot to do with what we were spending.”
Many families may now be making the same calculations. Contributions to 529 plans have risen more than 11% in the past year to about $11 billion, according to researcher Paul Curley at ISS Market Intelligence. With stock market gains, overall 529 plan assets surged nearly 35% to more than $412 billion from the first quarter of 2020 to the first quarter of 2021.
In 2021, an individual can contribute up to $15,000 per beneficiary to a 529 plan without paying gift taxes. Every dollar helps. Curley said saving $100 a month over 18 years can result in a balance of over $31,000.
Enhancements to 529 plans — including expansion of covered educational expenses — “are helping more and more families to save and save efficiently for the long-term goal of education through this short-term volatility during the pandemic,” Curley said.
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