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- Savvy parents and grandparents are investing in higher education for their kids.
- Private College 529 Plan locks in today's tuition rates, saving big on future costs and giving flexibility with school choice.
- Contributions are secure with the same federal tax benefits as any 529 plan.
What is the best gift you can give your children or grandchildren? While they may argue it's the hottest toy or technology on the market, forward-thinking parents and grandparents know that a good education will benefit their children's lives well into the future.
LaShanda A. has been saving for her nine-year-old daughter's higher education since kindergarten for just that reason. "My parents grew up in a time when Black people were denied access to many educational opportunities. They always told my brother and me that education is the one thing people can't take away from you — once you have it, it's yours," she said.
"For the career choices that my wife and I made, higher education was very important," said former banker Ben S., adding that he wants his three boys — ages 10, 12, and 14 — to have the same opportunities.
Both LaShanda and Ben have been saving for their children's higher education using Private College 529 Plan. Here's why it might be the perfect fit for your family too.
1. You can lock in current tuition rates to protect against tuition inflation
Ben was drawn to Private College 529 Plan to help him hedge against tuition inflation, given tuition for private colleges in the US has increased 38% over the past decade, according to data from the College Board.
Most state 529 plans are essentially investment accounts, so growth is tied to the markets, but there can also be market loss. Private College 529 Plan allows you to prepay for a portion of tuition now, securing current tuition rates and potentially saving thousands of dollars in the long run.
Private College 529 Plan — graph assumptions*
LaShanda agreed that the certainty of knowing how much her daughter's tuition would cost was the number one factor in choosing this plan. "No one knows what tuition rates will be in 12 years," she said, adding that the peace of mind is better than any ROI.
2. Your child will be able to look at colleges across the country
Unlike 529 prepaid plans offered by a handful of states, which can have residency requirements or limit use to in-state schools, you can open a Private College 529 account from any state and use your prepaid tuition at nearly 300 private colleges across the country.
The colleges in the plan range from large research universities to small liberal arts schools, including household names like Stanford, MIT, and Princeton. With so many colleges in the plan, there are options for every academic interest. And when you save in the plan, you don't need to pick a school; you're saving for all of them.
"There's a good mix of top-tier schools in the network," Ben said. "My oldest is starting to get interested in colleges, and a lot of the schools he's excited about are on the list."
LaShanda shared that seeing her alma mater, Spelman College, on the list of participants confirmed this was the right investment approach for them. "I know if Spelman is partnering with someone, then it's a reputable company," she said, hoping her daughter will also choose to attend Spelman.
3. You can save in a way that works for you while setting your child up for financial freedom
Private College 529 Plan offers many ways to contribute based on your financial situation, from one-time lump sums to recurring deposits over multiple years.
LaShanda loves how easy it was to set a savings target and schedule monthly deposits to hit the mark by the time her daughter graduates high school. She and her husband both graduated debt-free, and they're determined to provide the same for their daughter by prepaying her entire tuition. It's their way of giving her a head start in life, allowing them to concentrate on their future plans.
"We have plans to retire when she goes off to college," LaShanda said. "We'll know that this is taken care of, and we can use our money for other things at that point."
Plus, there are plenty of tax benefits that can make investing in Private College 529 Plan a smart move for your kids and yourself. It's a great way to shield your investment growth from taxes: While you can't deduct contributions from your federal taxes, you don't have to pay annual taxes on earnings and withdrawals remain tax-free as long as they are used on qualified educational expenses.
If you live in one of these nine tax-parity states, you can save in any 529 plan and still get state tax benefits: Arizona, Arkansas, Kansas, Maine, Minnesota, Missouri, Montana, Ohio, and Pennsylvania.
Private College 529 Plan can also be a powerful tool for grandparents and families thinking about estate planning — contributions are considered an exclusion gift, so they are exempt from federal estate tax, qualify for the annual gift tax exclusion, and can be superfunded — meaning you can combine 5 years of annual exclusions into one gift — to dramatically reduce the taxable value of your estate.
And new this year, distributions from 529 plans owned by family other than parents are not reported on the FAFSA. This means grandparents in particular can have a major impact on their grandchildren's college savings.
4. You have flexibility with your savings
You may have ideas about where your children or grandchildren will go to college, but it's impossible to know for sure. Luckily, even if your kids don't end up going to a school participating in Private College 529 Plan, there are plenty of other ways you can invest the money toward your family's future.
For instance, you can easily change the beneficiary to a different family member. Ben, who has accounts for each of his three children, explained that if his eldest attends a partner school, he'd allocate funds from all three accounts.
Moreover, your prepaid tuition is guaranteed for 30 years, so it could even be held for the next generation. You can also roll your funds into another 529 plan or take a refund. And starting this year, unused funds in a 529 plan can be rolled into a Roth IRA for the beneficiary's retirement.
"I think it's the best of both worlds — we can lock in the tuition, but my daughter also has flexibility," LaShanda said.
Learn more about setting your child up for success with Private College 529 Plan.
Rollovers to other 529 plans, refunds, and Roth IRA rollovers are subject to Private College 529 Plan refund value which is calculated as total contributions adjusted for net investment returns subject to a maximum annual increase of 2% per year or a maximum loss of 2% per year (0% loss after July 1st, 2024), compounded annually.
*Family opens a Private College 529 Plan account for their 8-year-old child and contributes one lump sum with tuition increases of 4% per year. When you save with Private College 529 Plan, you purchase tuition at then-current rates for each college in the plan.
This post was created by Insider Studios with Private College 529 Plan.