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College savings plans with a 529

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POSTED: August 14, 2008 5:00 a.m.

According to the College Board, the cost of tuition and fees at four-year public institutions has increased nearly 51 percent over the last 10 years (after adjusting for inflation), and these costs are certain to rise.

Though Georgia offers the Hope scholarship, which pays tuition and some book costs for qualifying resident students going to school within the state, it does not cover living expenses. Your savings and scholarship money will go far towards easing your burden when the time comes for your child to go to college.

Like any other investment, the key to having the money when your child is to enter college is to begin saving early and consistently and you will be just as ready for college as they are. Be realistic in your goals. You may not be able to save enough to pay for all four years but you can save enough to give them a good start. Neither do nor fall into the trap of taking out loans. The interest, though low, will really mount up over time. Save now to help your child leave college debt-free. A parent that sets aside as little as $50 a month when the child is born can have approximately $20,000, in an account that earns five to seven percent per year, by the time the child turns 18. Let the bank or your savings institution electronically deposit each month the amount you decide upon. And increase that amount proportionately to your increases in income.

Most states, including Georgia, offer a 529 plan (named after Section 529 of the IRS code) that is designed to encourage savings for higher education expenses. Each state determines how its plan is structured and the investment plans offered. Most plans offer out-of-state investor options so you may wish to check them out for significant differences in tax deductions, matching grants, scholarship opportunities and creditor protection. There are two types of 529 plans; prepaid and savings. Prepaid plans allow for pre-purchase of tuition based on today’s rates and then paid out at the future cost when the student is in college. The performance of these plans is driven by tuition inflation. Savings plans are different because they are driven by the market performance of investment plan, which are usually mutual funds. Savings plans may only be administered by the state. There are age-based investment options where the investments become more conservative as the student gets closer to college-age. Risk-based investments remain in the same fund regardless of the age of the student.

Get educated on the plans available in your state of choice by going to their state department of education website or just Google, "529 plans."

 

Charles Spann, Principal

Richmond Hill High School

 

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