Part II of a Two Part Series on 529 Prepaid Plans
By Sheila Salehian
Senior Deputy Treasurer for the State of Nevada
November 12, 2013
Last week, I shared a bit of my personal college savings story.The following lessons I’ve learned will hopefully help you firm up your college savings plans, understand more about 529 Prepaid Tuition programs, and avoid costly mistakes!
Lesson number 1: The earlier you start saving for college, the more affordable it is. Regardless of the higher price tag than when I first looked at purchasing a plan, for my family, it was the right decision to take the plunge and buy the Prepaid Tuition contract for my children. The peace of mind that resonates knowing you have taken control over the rising cost of tuition and that you have put aside some money to help them pay for the skyrocketing cost of a 4-year college education is unimaginable! Although it took my husband and I, 10 years to actually take action, we feel it is one of the best decisions we’ve ever made. Although we know this particular program only covers tuition, at the end of the day, tuition is a huge part of the overall debt burden of a college education. Also, if our kids are lucky enough to get a full ride scholarship, we will be getting our money back (minus a $100 fee) and can then add those savings to our retirement nest egg.
Lesson number 2: When investing in any program, it is important to know the facts. There are currently 12 state-administered Prepaid Tuition programs in the United States that are open to new enrollees. Here are some items to consider when thinking about whether a Prepaid Tuition contract is right for your family.
Do you meet the program’s residency requirements? Are there usage restrictions? Can the beneficiary use the program in or out of state where the contract was purchased? What are the program’s beneficiary change options? What is the program’s history and long-term projected viability? Are there flexible payment options & plan choices: university and/or community college? Be sure to review and clearly understand the cancellation & refund policy. Are there added state tax benefits to investing in the program? What entity provides investment oversight? Are quarterly financial reports available to the public? Is there an annual independent audit of the program? Is there an annual actuarial review? If so, what is the current funded status?<
Lesson number 3: Research what the financial experts are saying about the rising cost of a college education.
According to Bloomberg News, “College Tuition and fees have surged 538% since 1985, compared with a 286% jump in medical costs and a 121% gain in the consumer price index.”
Lesson number 4: The longer you wait, the less time you have to benefit from the tax advantaged savings accounts, and to properly prepare for the rising cost of college. In addition, experts are telling us that a college education is no longer a “want”; it is quickly becoming a “need.”
According to a Georgetown University study by 2020, 65 percent of all jobs in the United States will require postsecondary education and training beyond high school. Of the projected 55 million job openings through 2020, 35 percent of the job openings will require at least a bachelor’s degree.
Lesson number 5: If you can afford to open up multiple 529 college savings accounts, consider it. Traditional 529 accounts compliment Prepaid Tuition accounts and can help pay for additional higher education expenses. A family could use their Prepaid Tuition contract to pay basic tuition, while using another 529 college savings account to pay for their student’s books, fees, and other qualified higher education expenses, as defined by the IRS tax code.
In summary, as the saying goes, “It takes a village to raise a child,” and it may very well take multiple resources to pay for college, including Prepaid Tuition plans, other 529 College Savings plans, scholarships, and student loans. Don’t delay. Start saving today!
About the Author
Sheila Salehian is a Senior Deputy Treasurer for the State of Nevada, which offers a 529 prepaid tuition program and 4 other direct sold and advisor sold 529 college savings plans. Sheila is the Secretary of the College Savings Board of Nevada and oversees the Nevada Prepaid Tuition program among other duties. Prior to joining the Treasurer’s Office, Sheila was an executive for a Fortune 100 Financial Services organization providing expertise and support for a wide array of financial products and services.