So, what does an average college student pay for a good education these days and how can a 529 plan make a difference? According to the College Board, the average published prices for tuition, fees and room and board for four-year undergraduate colleges and universities (with estimated room and board) during 2020-21 are $22,180 (for in-state public schools), $38,640 (for out-of-state public schools) and $50,770 (for private non-profit schools). These are not small sums of money. In fact, these 2020-21 costs reflect tuition and fees increases of 1.1% (for in-state public schools), 0.9% (for out-of-state public schools) and 2.1% (for private non-profit schools) compared to 2019-20.
Paying for your child's college education may seem overwhelming, especially with rising costs. In addition to scholarships, financial aid and student loans, there are many ways for you to help finance higher education expenses. A 529 college savings plan is an investment opportunity that may help.
Named after section 529 of the Internal Revenue Code, 529 plans offer you tax-deferred growth of your investment as well as tax-free educational use of the money. Although you can't deduct contributions to a 529 plan on your federal income tax, some states permit their residents to deduct all or some of their contributions from their state income tax when investing in their own state's plan. Best of all, the plan's student beneficiary can enjoy tax-free distributions for qualifying educational expenses, which include tuition, fees, room and board (with limitations), required books and supplies, computers and related equipment at any accredited college, university or vocational school. If you make a distribution from your 529 plan that does not meet the criteria for qualified educational expenses, you may be required to pay income tax as well as a 10% early-distribution penalty on the investment gains.
One of the best things about a 529 college savings plan is that anyone — parents, grandparents, aunts, uncles, friends — can open an account. You even can set one up for yourself to finish or pursue your own undergraduate or graduate degree.