Make saving for college with a 529 plan a New Year’s resolution

Have you made your New Year’s resolutions yet? How about making one that can pay off? Resolve to save for a child’s college education – your children or a grandchild, niece, nephew, or family friend. Any savings in a 529 plan can make a difference. Plus, the sooner you start funding a 529 plan, the longer you give the money a chance to grow. Here are some good reasons to start now.

College is expensive, and loans add to the cost

Tuition and fees are expected to increase by 3%-5% annually. For example, 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 $219,520 cost of a private four-year education in 2020. Plus, the more you save, the fewer loans the student will probably need — which could ultimately lower the cost of college because it can help avoid costly interest payments.

Tax benefits

Who could say no to an opportunity to reduce taxes? Thirty-four states and the District of Columbia currently offer a state income tax deduction or tax credit for contributions to a 529 plan. (Contributions are not federally tax deductible.) In most states that offer tax benefits, anyone who contributes to a 529 plan can get a state income tax deduction. In 10 states, however, only the plan account owner can claim a tax benefit. Visit our tax benefits by state page to see if your state offers any for you!

Any earnings in a 529 college savings plan grow tax-free, which gives more of the money the opportunity to grow. Withdrawals are federal and state tax-free as long as the money is used for qualified education expenses, such as tuition, room, board, books, and supplies for post-high school education. Up to $10,000 per year can be withdrawn tax-free to pay for tuition for grades K-12 for public, private, and religious schools.³

The power of compounding

Growth on growth. That’s called compounding, and you can take advantage of this growth potential by contributing to a 529 plan when a child is young. That gives more time for the money to compound. Contributions to a 529 plan can add up over time. For instance, by the time a student reaches age 18, a $50 monthly contribution could grow to more than $19,000. Contributing $500 a month for 18 years could grow to more than $191,000.²

Set it and forget it

Most 529 plans let you set up automatic contributions, so you don’t have to remember to make them. This New Year’s resolution can be crossed off the list! Automatic contributions also utilize dollar-cost averaging, so you purchase fewer shares when prices are high and more shares when prices are low.

Learn more about how to contribute to a child’s education with a 529 college savings plan.