College Savings Plan for Your Children
By Robert H. Scott III
Professor, Dept. of Economics, Finance & Real Estate, Monmouth University
T
he college savings plan known as a “529” is often touted as a smart way to save for a child’s college education. But these plans involve more than just putting away money for college. Here an expert on 529s, shines light on how the plans work.
What are 529 plans? A 529 college savings plan is an investment account that families can open to save for college by investing money that grows tax-free. The name
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of the account comes from Section 529 of the U.S. tax code. The money can be used for qualifying education expenses, such as tuition, room and board, textbooks, computers and travel. People can add money to a 529 account whenever they like, or set up automatic withdrawals from their checking account. At the end of 2020, Americans had invested a total of US$425 billion in 529 plans. In 2020, the average 529 plan had $25,644, but average
balances vary by the age of the child. This amount is almost exactly the total cost of only one year at an in-state, four-year college. The average total cost of one year at a private school is more than double that amount. When money is placed into a 529, it’s not as if the money is just sitting there. You will have several possible investment options to choose from that comprise stocks, bonds or a combination of the two. There are usually preset investment portfolios based on a child’s age. When a
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