Washington, DC (PRWEB) September 10, 2014
In 2013, the average cost of college tuition came in at just over $38,000 for four years at a public university, according to statistics at the Saving For College website. For a young child who doesn't start college for nearly two more decades, the price is expected to be more than double, clocking in at over $92,000. Given this data, it's a wise move for parents, no matter how young or old their kids are, to start saving for college tution sooner rather than later. New York Times and USA Today Best Selling author, Sanjay Jain, M.D. MBA has recently published a video on investing in tax-advantaged 529 college savings plans.
One of the best investment vehicles for parents to use to save for their kids' college expenses is a 529 plan. These college savings plans are named after a section of the Internal Revenue Code, and were created in 1996 as a way for parents to save money to be used for qualified college expenses. With few restrictions on who can open them, or how much can be contributed, they're highly recommended by many financial gurus including Dave Ramsey and Jean Chatzky.
There are two types of 529 plans: savings plans and prepaid plans. The savings plans work much like an employee's 401K or IRA; the money is invested into mutual funds that are selected by the account owner. The value can increase or decrease depending on current market conditions.
The prepaid type is usually not a good choice. What happens if parents prepaid tuition for their son to attend their local state college, but as he goes through high school gets his heart set on going to an out-of-state school? Another possible risk is that the school may not be in existence when the child is ready to attend. Finally, by prepaying, the school earns interest of off the money, rather than the parents.
Besides being able to increase the value of the money during upswings in the market, parents also receive tax benefits by contributing to their child's 529 plan. Contributions are not deductible on federal tax returns, but the investment grows tax-deferred and distributions that are used for the beneficiary's college costs are federally tax-free. Some states grant state tax breaks as well.
It's wise to spend time doing some research to find a plan that's a good fit for the family and children involved. Every state has at least one 529 plan, and many don't require that the child or parent be a resident of the state. Parents have the option of working with their financial advisor to find a 529 plan, or they can open an account themselves by using helpful 529 comparison tools online.
No matter which approach parents take to investing in their child's future, they should first ensure that they're saving adequately for their own retirement. Once they've established the habit of saving for retirement, making regular contributions to college funds for the kids is a great see that their kids start adulthood with few financial burdens and a solid education that gives them plenty of opportunities.
For more information on this and other topics related to financial fitness please visit Dr. Jain’s website at http://www.sanjayjainmd.com/.
About Dr. Sanjay Jain:
Sanjay Jain, M.D. MBA is a New York Times and USA Today Best Selling author, accomplished medical doctor, health expert, life coach and inspirational keynote speaker who has dedicated his life to helping people find their purpose by achieving a meaningful life that they deeply cherish.
Sanjay Jain is U.S. trained and a board certified physician with over 15 years of clinical experience. He holds certifications in Diagnostic Radiology, Integrative Medicine, and Healthcare Quality and Management. He is a graduate from the accelerated BS/MD program at The Northeast Ohio Medical University. He has diversified experience in the private practice, academic, and integrated multispecialty settings.
He was a former assistant professor at The Ohio State University where he also obtained his MBA at the Fisher School of Business. The combination of which has given him a unique voice and understanding of the many issues we face today in a real and practical sense.
Follow Sanjay on Twitter at @sanjayjainmd. His new book, Optimal Living 360: Smart Decision Making for a Balanced Life (Greenleaf) is available in stores now!