Are College Savings Plans Worth Considering

March 22nd, 2010 by admin

The United States has government-sponsored college savings plans and make it easy to save for a future higher education, whether that is for a child, a grandchild, or yourself. A 529 College Savings Plan is an investment account that are intended and designed to make it easier to save for college and other college related expenses. Contributions made into qualified college savings plans appreciate tax-deferred.The benefit is that you don’t pay federal taxes on dividends and capital gains that you may earn for you withdraw any money from the account. The penalty for withdrawing from a college savings plan is that you pay taxes plus up to 10% penalty for the early withdrawal.Some college savings plans such as Prepaid Tuition 529 Plans allow for prepayment of tuition they give you an opportunity to pay for college at today’s prices, even though your child, or beneficiary will not go to college for several years. Obviously, tuition rises every year and lacking in tuition cost now can potentially save thousands of dollars.Is it smart to invest in a college savings plan? While the challenge of contributing to a college savings plan may be challenging for some families, higher education costs rise significantly every year. Additionally, a college education has become the minimum for qualifying for a good job in today’s work environment.How Much Will A College Education Cost in 10 years? The US Department of Education frequently reminds the public about some very valuable information on this matter. During the past decade the cost of a college education and a four-year public school has risen well over 50%. By comparison, four-year private schools tuition has risen nearly 40% in the same timeframe.Obviously this data suggests that your money must grow by 5% every year just to keep up with the break of tuition increases. College savings plans can help you meet or exceed these rates. Deferring taxes or eliminating taxes on your investments allows for your college savings accounts to more than offset the increase.

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