The bad news about college costs is that they continue to rise faster than inflation. The good news is there is a tax-advantaged savings plan called a 529 plan that is designed to help pay for future education costs. Our 529 savings calculator can help you plan for your children’s educational future.
The results are hypothetical based on your input. Your results will vary. Any rates used are for illustrative purposes only and does not represent performance of any actual financial vehicle/strategies.
Balancing risk and timelines.
A 529 can include a wide range of investment options, including index, equity and fixed income options and even target-date portfolios. Keep in mind how soon you need to pay for your loved one’s education—if your child is still young you may decide to invest in riskier investment products. If you plan on withdrawing the money soon, you should stick to the safer side. Please note, all investments are subject to risk, including loss of principal.
Two ways of paying.
When it comes to college savings, you should know that there are two types of 529 plans: prepaid tuition plans and education savings plans. Some colleges offer prepaid 529 options, which allow you to put aside a certain amount of money to have tuition fully paid for, guaranteed. Education savings plans give you more flexibility in terms of college choice, but do not guarantee that you will have 100% of tuition covered.
529 Education Savings Plans are offered through properly licensed Registered Representatives of NYLIFE Securities LLC (member FINRA/SIPC), a licensed Insurance Agency and a New York Life Company.
A shorter timetable.
If you start saving when your child is five years old, your investing timeline will only be 13 years. That means you may consider a more cautious, defensive portfolio than your longer-term investment goals, like retirement.
Like an IRA or a 401k, investments grow and compound tax-free. And in most cases, you can deduct from your state income taxes any contributions to a 529.
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*Note, any unqualified withdrawal are subject to ordinary income taxes and 10% IRS penalty on earnings.