We’re in the final home stretch of the holiday season. While we’re hoping you’ve combed through our gift guides and have already brought the joy and instruction of Elf on the Shelf to cross your threshold, today we’d like to offer another gift idea for parents, grandparents, family and friends looking to make a big impact on a child’s life that goes far beyond the holiday. This year, consider making a contribution to your child’s 529 college savings plan.
Why Should You Give?
Let’s get quickly up to speed: college is expensive. According to the National Center for Education Statistics, for the 2010-11 academic year, annual dollar prices for undergrad tuition, room and board were estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions and $23,500 at private for-profit institutions.
And if you think that’s expensive, hold on to your hats (and checkbooks): according to the U.S. Department of Education, by 2030 annual public school tuition will be $44,047. Which means (drumroll please) the total cost for a four year degree will be more than $205,000.
Have we painted the gold-plated picture for you? Education costs are skyrocketing, and putting a savings plan into motion when a child is born – or toddling around – will help better prepare your family to mount these astronomical figures.
529 Plan Details: A Closer Look
Not familiar with a 529 plan? It’s an education savings plan that helps families set aside money for future college costs, which could include tuition, fees, books and supplies students need at accredited educational institutions. Typically a parent or grandparent will open the account and name a child or relative as the account’s beneficiary.
In 2013, as a single tax filer, you can contribute up to $14,000 per beneficiary to this plan. Married couples filing taxes jointly can give up to $28,000 per beneficiary to the plan. You could also elect to give up to five years’ worth of contributions ($70,000 for single filers/$140,000 for married joint filers) per beneficiary in a single year.
Lest you be concerned about this account interfering with a student’s financial aid eligibility, take heed: there would be minimal impact. 529 plans are considered a parental asset, so only 5.6% of the 529 plan will be included in the expected family contribution that’s calculated during the financial aid process.
More good news for those considering donating? There are potential tax benefits, from a credit or deduction in some states for your gift to a lower taxable value of your gross estate.
While anyone can open and fund a 529 plan for the young child in their life, who will be a college freshman before you know it, first we suggest talking to the child’s parents to determine if an account is already set up and/or if it’s something they would be interested in you pursuing. If you choose to move forward with contributing to a 529 plan, we also recommend that you consult a financial/tax professional to determine what exactly you’ll be able to give, and the potential tax benefits you might receive.
It’s easy to be focused upon the here, now and magic of your child or grandchild’s first few holidays. While we advocate relishing those moments, it’s also a good time of year to look ahead – and help make the path to a great education more within reach for your loved ones. That is the gift that keeps on giving.