By Pennsylvania Treasurer Stacy Garrity
October 8, 2024
Parents encourage their children’s interests from the time they’re small by enrolling them in school, running them to sports practices, signing them up for camps, buying supplies and gear, and so much more. There’s one more very important step that parents can take to help their child succeed no matter where life takes them: Saving for their future education with a 529 plan.
Whatever a child’s passion is when they embark on a career path after high school, they’ll likely need some type of training and education to help them realize their goals. Whether they head to a four-year university, community college, technical school, or begin an apprenticeship, 529 plans are an excellent tool to help save and pay for those opportunities.
It’s never too late to start but saving early and often with a 529 plan is one of the best ways to make future tuition bills less intimidating.
Confucius is credited with saying, “The man who removes a mountain begins by carrying away small stones.” That theory also applies to education savings. Every small deposit into a 529 plan can make a big difference years from now with the power of compound interest growth and time on your side. Saving this way can help the next generation get the training they need without a mountain of debt.
A recent survey of 6,000 Pennsylvanians revealed that families have remarkably high expectations for their children’s educational future. This was true across all incomes, races/ethnicities, education levels, and marital statuses. New parents typically want their child to attain more education than they themselves accomplished.
However, the findings suggest that parents who reported it was “too early to start saving” often had lower expectations for their children’s future education. No other measure in the survey was so consistently associated with lower parental expectations. Unfortunately, parents with that mindset will have saved fewer assets and be less able to afford the growing cost of college, which may result in self-fulfillment of their initial lower expectations.
The good news is that other research has shown that even a small amount of savings set aside for a child’s future education can positively impact the child’s own view of whether they are capable of pursuing education after high school.
To find the best savings options in your state, the first thing to look for is whether your state has a Children’s Savings Account (CSA) program like Pennsylvania’s Keystone Scholars. CSAs are a great way to get a jumpstart on savings. In Pennsylvania, every child born since Jan. 1, 2019, has $100 automatically set aside for their future education.
Next, check out your home state’s 529 plan. With 529 plans, families enjoy great tax benefits that aren’t available with other savings options. Families pay no federal income tax on investment growth, and withdrawals used for qualified expenses aren’t taxed. And in many cases, you’ll find additional benefits for in-state residents. Often, no state income taxes are owed on earnings, and many states even offer a state tax deduction or credit on 529 plan contributions. There may also be other great benefits; for example, funds in a PA 529 account don’t count against a Pennsylvania resident’s eligibility for state financial aid, and they aren’t subject to state inheritance tax.
If you want to dig even deeper, CSPN has an amazing 529 Search & Comparison tool to help.
We live in exciting times, and I believe the future is bright for the next generation of the American workforce. Technology and the world are changing at lightning speed, which means your child’s future career may not even exist yet. But you can, and should, start saving today to help them prepare.
529 plans have been around for decades, and they’re more important than ever for parents and grandparents who are looking to save for their children’s and grandchildren’s education. It’s never too early to start saving with a 529 plan to pave the way for your child’s future.
About the author:
Stacy Garrity is Treasurer of the Commonwealth of Pennsylvania and oversees the PA 529 College and Career Savings Program which includes two plans, the PA 529 Guaranteed Savings Plan and the PA 529 Investment Plan, which has earned a Gold Rating from Morningstar. Treasurer Garrity has cut fees multiple times for PA 529 accounts, saving families more than $16.5 million. PA 529 has assets of more than $8 billion.