You want to save money for college, but putting pennies in a jar may not be the best way to save the thousands you’ll need. Have you ever considered a 529 college savings plan?
What is a 529 Plan?
- It is a savings account for college.
- Most states have their own college savings plan, but you can typically invest in any state plan. Be sure to check out recent reviews of college savings plans to understand their performance. The Nebraska plan is called NEST, or Nebraska Educational Savings Trust. Nebraska plans are highly rated, considering factors like tax benefits, investment choices, fees, and benefits.
- Most states will allow your funds to transfer to any public or private college. So you don’t necessarily have to go to college in the state you have your account in. If you invest in Nebraska’s 529 NEST Plan, you can use these dollars at a college in a different state or abroad, with no penalty.
So how does it work?
- States usually partner with a mutual fund company, which in turn offers funds to invest in. These funds are a bundle of stocks, bonds, cash, and other securities. When you have a mix of all these investment options, your money is less likely to “tank” if one portion goes wrong. They balance each other out, and can be less risky.
- You can get a 529 Plan in one of two ways: direct or advisor-sold. Direct sold funds are managed by you. You will be in charge of watching market trends, and making investment changes as needed. The benefit to this is there are no fees because you are not paying for an advisor’s advice. An advisor sold fund is managed by a financial advisor. This person’s job is to know the market and help your money do well. And when your account does well, they do well too since most advisors charge an annual fee from a small percentage of your investment (typically 0.25-2%). Currently, Nebraska NEST has four 529 Plan options. Research more about each plan on the NEST website.
What are the benefits? Why should I consider contributing to one?
- Students with college savings accounts are six times more likely to attend college than those who do not save. Don’t wait until senior year of high school to freak out about how you will pay for college! Contributing little portions over time can really add up. And once your money goes in this account, you may be less likely to take it out for other expenses, since you will be financially penalized for using it on non-college related expenses.
- Investing funds can have greater reward than just putting your money in a savings account at a bank. Currently, a savings account may offer you a 1-2% return on your invested dollars, but some investment plans can offer higher return rates.
- The money you invest is tax-deferred (meaning you don’t have to pay taxes on the chunk of change you save), so you can grow this savings significantly over time! And most states do not tax you when you eventually use the funds on college-related expenses (like tuition, room and board, books, supplies, fees). Plus, Nebraska offers tax deductions when you contribute to NEST. But be careful: if you cancel your plan or move it to a different state, you could be taxed on that withdrawal.
How late is too late to begin contributing?
- Every family’s financial situation is unique. You may be a junior in high school and consider contributing. Investigate the NEST website for more details, or connect with your family’s financial advisor.
For more information on college savings plans and other college savings options, check out savingforcollege.com.