(NewsUSA) They may be one of the best-kept secrets out there. In fact, even as college costs keep rising as surely as we're all getting kind of sick of Zoom meetings, a new Morning Consult survey done with financial firm Edward Jones found that only 36 percent of adults even knew what a 529 Education Savings Plan is - and even less (21 percent) knew it can be used to fund more than just higher education.
Time to let the proverbial cat out of the bag.
1.They're a tax-advantaged way to help save and potentially grow your money.
You know how when you file your taxes and you have to report the interest you received on your regular personal savings accounts? Well, with these state-sponsored 529 plans, your account earnings aren't subject to any federal income taxes - that's right, nada - or even, in many cases, state income taxes so long as the money is used for qualified education expenses.
"They're an attractive and practical way to save for education," said Steve Rueschhoff, a principal at Edward Jones. "But only 20 percent of parents surveyed reported that they were using, or planning to use, them for their own or their children's education - even as a complement to other strategies like personal savings accounts, scholarships and financial aid."
And history tells us you'll need all the help you can get. The average annual cost of attending a private four-year college, which now stands at $37,650 including fees, rose 17 percent from 2012 to 2021, according to the College Board. Which helps explain why the Federal Reserve estimates total student debt ballooned 70 percent over that same period to $1.7 billion.
2.Tuition and expenses at colleges and universities aren't all they cover.
Did the way some schools responded to the coronavirus pandemic make you start to think about alternative education settings for your young child? The plans also allow for up to $10,000 per year, per beneficiary, to be applied towards K-12 tuition.
Plus, per the Setting Every Community Up for Retirement (SECURE) Act, signed into law in late December 2019, the definition of "qualified higher education expenses" was expanded to include student loan repayments and certain apprenticeship costs.
3.Some reasons survey respondents gave for not using a 529 plan just don't match the facts.
Ten percent of parents with kids under 13 thought they'd be penalized on unused funds if their kid wound up not going to college. (Only if the money is used for non-qualified education expenses; however, as the account owner, you have the flexibility to name a qualified family member - or even yourself - as the beneficiary without triggering income taxes and a 10 percent penalty on the earnings.)
And 7 percent of parents with kids under 13 thought they'd somehow lose all they'd saved if their child qualified for a full-ride scholarship. (Absolutely false, and the penalty is waived in that case.)
4.Maybe it was the coronavirus, but more people now think they're not saving enough.
Every state's 529 plan allows for maximum contributions of at least $235,000 per beneficiary, but it's more than double that in places like California and New York. (Your accountant can discuss the tax implications with you.) Whether they knew that or not, 45 percent of those surveyed felt they weren't socking enough cash away to reach their own goal. That's up 5 percent from the 40 percent who said the same in July 2020.
Not sure how much you'll need for college? Edward Jones has a free online tool to help you figure it out. And if you're like 24 percent of those who thought they'd benefit from professional advice because they were worried they weren't saving enough, the firm's local financial advisors have the perspective, experience and empathy to guide you through it all.
States don't guarantee against investment losses. The investments within education savings plans are subject to market risk and fluctuation, and investors may lose money. Details about investment options, share classes, fees, expenses, risks and other important information can be found in each plan's program description of offering statement. Read it carefully before investing