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 college savings plan?
It is a state-sponsored, tax-advantaged investment 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 the plans’ account fees, investment offerings, and performance. The Nebraska plan is called NEST, or Nebraska Educational Savings Trust. NEST has been nationally recognized and highly rated, considering factors such as tax benefits, investment choices, fees, and benefits.
529 college savings plan funds can be used at any accredited public or private college. You don’t necessarily have to go to college in the state where you have your 529 account. If you invest in Nebraska’s 529 NEST Plan, you can use these dollars at virtually all universities, community colleges, technical schools and graduate schools nationwide and some abroad.
So how does it work?
States usually partner with an investment manager to provide underlying investments, which typically consist of mutual funds. The mutual fund offerings consist of stocks, bonds, cash, and other securities providing a mix of risk-based investment options ranging from aggressive to conservative. Many plans, including NEST, offer an FDIC, money market or guaranteed option designed to protect an investor’s principal while providing some investment growth.
You can get a 529 Plan in one of two ways: direct or advisor-sold.
- Direct 529 plans are managed by you. You will be in charge of watching market trends, and making investment changes as needed. Keep in mind, the federal rules only allow two investment changes per year. The benefit to a direct 529 plan is lower fees because you are not paying for an advisor’s advice.
- An advisor sold 529 plan is managed by a financial advisor, and the fees will vary depending on the class of shares and investment option selected. This person’s job is to know the market and help you with your college savings goals.
Currently, the Nebraska NEST program 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?
A 2017 IHEP study shows children with college savings between $1 and $499 are three times as likely to attend college and four times as likely to graduate as those without any college savings. 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 into a 529 college savings 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 in a college savings plan 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 529 plans can offer higher returns based on fund performance.
The money you invest is tax-deferred (meaning you don’t have to pay taxes on the earnings as long as the funds are withdrawn for a qualified expense), so you can grow your savings significantly over time! And qualified withdrawals are not taxed when you use the funds for college-related expenses (like tuition, room and board, books, supplies, fees). Plus, Nebraska offers up to a $10,000 state income tax deduction for contributions account owners make to their NEST account. But be careful: Nebraska State tax deductions are subject to recapture when a participation agreement is canceled, the assets in an account are rolled over to another state’s plan, or when a Non-Qualified Withdrawal is made.
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, or you may have a newborn baby. By starting to save as early as you can, you will be able to take advantage of a longer investment time horizon. But it is never too late to start. For more information on college savings plans and other college savings options, check out savingforcollege.com.
Got a middle school student?
During the 2017-18 school year, the Nebraska State Treasurer, First National Bank of Omaha, EducationQuest Foundation, and College Possible – Omaha have partnered to encourage families of middle school students to save for college. Families who have NEST 529 accounts or who set up new accounts can enter a drawing to win $529 to be deposited in a new or an existing NEST college savings account.
Eighteen account owners – six from each of Nebraska’s three congressional districts – will be selected at random to each win a $529 contribution. The drawing closes May 31, 2018. Enter at www.NEST529.com/middleschool.
(Thanks to the Nebraska State Treasurer’s Office for sharing information for this blog post.)