College Savings Plans
If your baby was born today, expect to spend more than $250,000 for a private, four-year college or as much as $115,000 for a public college, says T. Rowe Price and the College Board. To save enough, you need to start today, putting money aside monthly that earns an 8 percent return, a near-impossible yield.
Companies can help financially stretched employees with 529 college plans. Comparable to 401(k) retirement plans, 529 plans allow investments to build up tax-free. Plus, they are exempt from federal taxes at the point you withdraw the funds to pay college expenses. Unlike 401(k) plans that have no residency restrictions, 529 plans set by states apply their own rules and customize benefits for residents.
Tuition, room and board, books and fees, and other expenses required to attend any accredited college or university in the United States, and some foreign institutions, are included. All 50 states have qualified tuition programs, with over 1.5 million children enrolled. Here’s how they work:
- Wage earners can save on behalf of students of all ages -- for tuition, fees, room & board, textbooks and computers.
- There are no residency restrictions.
- The employee pays into an investment account on behalf of a designated beneficiary.
- Most states permit each beneficiary to receive more than $200,000.
- Most states allow minimum contribution limits as low as $50 a month through payroll deductions or automatic transfers from a bank account.
- Some plans offer age-based portfolios of mutual funds, investing in mostly stock funds when the beneficiary is young, shifting to conservative bond and fixed-income funds over time.
- Investment options can be changed once every calendar year.
Contact WorkInvest to learn more.
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