Three reasons to talk to new parents about a 529 plan

Three reasons to talk to new parents about a 529 plan
Key takeaways
Tuition and fees are expected to rise 3%-5% annually
College costs are only going to go up, so the sooner parents start the more they can potentially save.
The fewer loans the better
Opening a 529 plan early can help reduce the need for student and parent loans.
A 529 may add up to more
Compared to a taxable account, the benefit of tax-free growth may be significant.

College is likely not the first thing a new parent thinks about — particularly if they’re sleep deprived. But it’s important that parents save for their children’s education as soon as possible. Educate them about why saving now pays off later. Don’t let them be the parents who later on say they wished they had saved sooner!

Here are three straightforward points to make the case for saving now.

1. Tuition will likely grow faster than your clients’ children

Tuition and fees are expected to increase 3%-5% annually. For a child born in 2020 , the cost of four years at a private college could rise to $484,808 in 2038 — the year they would start college.1 That’s more than double the cost of a private four-year education in 2020. And at $219,520, the cost for 2020 is already a lot!

2. The fewer the loans the better
The more parents save, the fewer loans they would probably need — which could ultimately lower the cost of college because they can help avoid costly interest payments. Loans can impact both a student’s and a parent’s financial picture. For a student, paying off loans can take years and can impact their finances when they start working — and maybe their ability to enjoy life if they don’t have money! For parents, paying a loan can impact their ability to save for their future.

3. A 529 savings plan can help clients save more

The tax-free growth in a 529 college savings plan may be significant when compared with a taxable account. For example, in 18 years, a $10,000 initial investment in a 529 plan can add up to nearly $6,000 more than in a taxable account. Of course, most families contribute regularly, rather than making one investment, so that number could be even higher.

Invesco, 2020. This hypothetical illustration assumes an initial investment of $10,000 and a 5% annual rate of return. The taxable account assumes a 28% federal and 5% state tax rate. The illustration does not represent the performance of any specific account or investment and does not reflect any plan fees or sales charges that may apply. If such fees or sales charges were taken into account, returns would have been lower.

Help parents get started today

These are just three of the many reasons why opening a 529 plan as soon as possible may make sense for your clients. Get more ways to motivate clients to open a 529 plan with our ABCs of education savings guide


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    Sources: College Board, “Trends in College Pricing 2020,” 2020, and Invesco, Ltd., 2020. This scenario shows calculations based on four years at a private college and includes tuition, room and board, and fees, and assumes an average of 4.5% increase per year. The hypothetical examples are for illustrative purposes only and do not predict or depict the performance of any specific investment. Actual results may vary.

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