By: Preston Mangus
We’ve all felt it: the tinge of remorse that sets in after the holidays, when we think about all the excess food and shopping we indulged in. And for parents, the pangs of post-holiday guilt can be especially cringe-worthy when we think about the gifts we gave our kids. Sometimes we realize that we were so intent on buying those cool toys, clothes and gadgets on their lists that we missed the opportunity to give them a present that can truly benefit them for many years to come—not just temporarily entertain them. If you find yourself wishing you had done something more practical for your child (or grandchild) during the holidays, I have the perfect solution that will allow you to make a huge positive impact on their future college education and career—not only during the holidays, but the whole year through! I’m talking about the Florida 529 College Savings Plan.
The 529, Explained
The Florida 529 Savings Plan is a federally tax-advantaged college savings vehicle that lets you save money for college in an individual investment account. Plans vary from state to state, and you can typically participate in any plan that best suits your needs. When you enroll, the fund will be set up with the child as the beneficiary and will require a minimum contribution. The 529 offers many advantages:
- Contributions grow tax-deferred, and are tax-free if used for the beneficiary’s qualified educational expenses
- Some states offer tax incentives for residents
- Most plans will allow lifetime contributions in excess of $300,000
- There are no minimum income levels for participation
- Funds offer a variety of investment options that are professionally managed
- You can change beneficiaries within the family, without penalty, if plans change
- Funds can be used for any institution accredited by the U.S. Department of Education, in the U.S. and abroad, and can also be used for graduate school
- Grandparents can contribute a lump sum gift of up to $70,000 individually, or $140,000 jointly, and avoid federal gift tax (subject to some provisions)
- The plan offers about 50 different college savings options to choose from, as well as different options for funding them
Please note: the 529 comes with certain conditions that you, as the parent, should be aware of. (You may want to consult a tax professional or financial planner). Any withdrawals that are made from the fund but not used for college expenses will be taxed at ordinary income tax rates, plus a 10% federal penalty. Also, the plans are not insured and investments made in equity accounts could experience losses; returns are not typically guaranteed. But over time and with the built-in tax advantages, the potential for growth of principal can be quite significant.
If you prefer less volatility, you can also consider prepaid tuition and housing expense options as well. The Florida Prepaid Plan is an excellent example. The bottom line is that these plans really do have something for everybody. You just need to find the one that’s the best fit for you.
Not only will this gift benefit your children immensely, but it will also make college expenses a lot easier for you, too! You can also approach your family and friends and let them know that, instead of typical presents for holidays, birthdays and other occasions, they can consider contributing whatever amount of money they would have spent on a gift (or more!) to the child’s 529 College Savings Plan. You could even commit to a “matching” program, where you agree to match the amounts your loved ones give! Even relatively small contributions can grow significantly over time. The key is to start early.
You can also get your child involved in the process: They should strive to contribute a portion of their income (e.g., allowance, babysitting, part-time work, etc.) to benefit their education as well. This will help them get vested in the process, remind them of the importance of education, and establish a healthy habit of saving for the future.
Remember: Planning ahead for your child’s education will help lighten the heavy load of continuously increasing tuition costs. According to Savingforcollege.com, a degree from a public in-state university is estimated to cost around $94,800 for tuition and fees in 2033. Add food, shelter, clothing and other necessities to that number, and it’s enough to bring out the Grinch in anybody! Today, many young people struggle to cope with the impact of smothering student loan debt. Use time and compounding to your advantage, and get started now on a program that will be a win-win for everybody.
When you take advantage of the many special moments throughout the year to set aside some cash for their education, your child will be amazed once they find out just how well their 529 plan has prepared them for the reality of college expenses—and for their future.
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. VyStar Credit Union disclaims any liability for decisions you make based on the information provided.