If all goes according to plan, my son will be Penn State University’s starting quarterback in 2025. Why? He happens to be my third child and by the time he starts college, we like to joke that he better have a scholarship lined up.
College is expensive. I know this firsthand. Even with scholarships and grants, my husband and I are still paying off our college and law school loans. We’re hopeful that we’ll be done in time to start paying for our kids’ education. And pay we will. The College Board® projects, based on average tuition and fees for 2010-2011 and increases of 6% annually, that in 18 years, the cost of a four-year private college education will reach $340,800; the cost of a four-year public college education will reach $95,000. That means that the cost of a basic college education for my kids will land somewhere between $285,000 and $1,022,400. Which is why Charlie needs to get that throwing arm ready.
We do have a backup plan. We started a college savings plans for our kids. To be honest, it’s small. Since we’re still paying off our own loans and you know, the kids keep insisting that we feed them and turn on the heat occasionally, there’s not a lot of extra income to stash away. But that’s one of the great things about many of the plans available to parents: you don’t have to fund them with a million dollars.
Our kids have 529 accounts. A 529 plan is an education savings plan. It takes its name from section 529 of the Internal Revenue Code. The plans are relatively new, having been around only since 1996, and can be found in all fifty states plus the District of Columbia.
For federal income tax purposes, putting money in a 529 plan won’t result in a deduction (as it would with, say, an IRA). However, neither the earnings nor the distributions in 529 plans are taxable for federal purposes. In other words, investments in these plans grow tax-free and are never federally taxable so long as you use withdrawals from the investments for eligible college expenses, which includes most costs associated with college like tuition and room and board as well as fees, books, supplies, and equipment. However, if you withdraw money from the plan for a purpose other than eligible college expenses, you will be subject to federal income tax and an additional 10% federal tax penalty on earnings.
And if you’re wary about whether the federal income tax treatment of these new-fangled plans is going to stick, you can rest assured. The Pension Protection Act of 2006 (Public Law 109-280, 120 Stat. 780) permanently extended the EGTRRA amendments to include 529 plans. Those amendments were previously scheduled to expire at the end of 2010.
For state income tax purposes, depending on the state, you may be entitled to a deduction for making a contribution – even if you’re not the parent. Additionally, some states allow the deduction regardless of where the plan is located – check your state rules to be sure.
There are entire websites and publications devoted to 529 plans. I’m not an expert – and I certainly don’t know much beyond my own state plan. If you have specific questions about a 529 plan, check with your financial advisor.
We also linked our kids’ plans to a Upromise account. It’s free to sign up and cash earned from spending goes directly into a Upromise account and can be invested in a tax-deferred 529 plan (as well as other options). So far in 2011, out of the millions of dollars earned through Upromise, members have deposited $13.2 million into Upromise 529 plans, $1.2 million in Sallie Mae High-Yield Savings Accounts and $3 million was applied directly to a linked Sallie Mae student loan. Not too shabby, huh?
This, of course, brings us to today’s giveaway. You can enter to win a $100 Target gift card from Upromise by Sallie Mae, an online retail site that gives parents cash back for college either through a direct deposit into a 529, used to pay down student loans, or as a check. The site offers access to more than 900 retailers, with opportunities to save 1 to 25% (Target being one of them!).
It’s easy to enter. Just post a comment below to tell me how you’re planning on paying for college (or how you paid for college): loans, jobs, grants, parents, luck?
I’ll choose one winner randomly (using a number generator) out of all of the qualifying entries.
Here are some more rules because, as you know, I’m a lawyer and I like rules:
- Entries must be posted in the comments section for this blog post in the space below by 4:59 p.m. EST on September 14, 2011.
- Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts.
- I love my Twitter followers and my Facebook fans but for this particular giveaway, tweets and Facebook comments will not be counted. Ditto for emails. You must leave your comment on the blog at this post.
- You can enter as many times as you like but you must leave a different answer each time you comment.
- Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest.
- Pingbacks and other links will be disregarded for purposes of the contest.
- You must include your full name and your email address with your entry, just enter it when you register to comment. I won’t publish your email address but I do need contact information for the winning entry.
- Due to shipping considerations, only United States addresses, please. Sorry, Canada, eh?
- I respect your privacy and I will not send you anything unrelated to your entry in this contest.
- By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
Comment away!