LITTLE ROCK, Ark. (KTHV) - Your child's education is one of the biggest expenses parents plan for and think about when they have children.
Eric Hutchinson with Hutchinson Financial joined THV's Ashley Blackstone with "THV 11 This Morning" to share tips.
1. How important is a college education?
College graduates earn nearly twice as much as those with only a high school diploma. But a college education can be expensive. Over the past ten years, the average total cost of college has risen more than twice as fast as the consumer price index.
2. What options are available to help parents and grandparents to help save for a college education?
While there are many college savings strategies available, 529 plans offer many unique advantages. 529 Plans offer a flexible, tax-advantaged way to save for a child's college education.
They offer federal income tax advantages and in Arkansas, there are attractive state income tax benefits as well. These tax advantages help make it possible to grow your college savings faster than in a taxable account. You pay no taxes on earnings while your money remains in a 529 account.
When your child or grandchild is ready to enter college, withdrawals are exempt from federal income taxes when used for qualified higher education expenses such as tuition, fees, certain room and board costs and supplies.
3. Who can make contributions to a 529 plan account?
Parents and grandparents or anyone else for that matter can make contributions to a 529 plan account. Your gifts to the account can help reduce your gross estate under current estate and gift tax rules.
4. Who controls the money in the 529 plan?
The person who sets up the 529 plan initially is usually the owner of the account. The account owner remains in control of the funds and determines when and how the money actually gets spent.
5. What happens if the child doesn't need all the money accumulated in the account?
If the designated child does not need all the money for their education, you can change the beneficiary and use the money for a different child or other family member.
Furthermore, if you need the money for some other purpose, you can withdraw some or all of the balance at any time. However, if you withdraw money for a purpose other than educational expenses, the withdrawal may be subject to income taxes.
6. So, it sounds like 529 plans are a pretty good savings option for financing a child's education, right?
529 plans are not the only college savings option, but they are a good option to consider and do provide a great deal of flexibility for the family.
To find out more about college savings, there is a free video library on the Hutchinson Financial website where you can easily access information on 529 plans and a number of other important financial topics at www.hutchinsonfinancialinc.com.