We had Mother's Day in early May, and Father's Day is coming up this month. In September, we'll celebrate Grandparents Day. And now we've got 529 College Savings Day. It's a bit hokey, falling as it does on May 29, as in 5/29. Cute, right?
Still, I don't mind another celebratory day since this one promotes the tax-favored plans to save for college. We need a day or really a month or two to promote 529 plans. Despite the concern about a looming student-loan crisis, less than one-third of Americans say they know what 529 plans are, according to a survey by financial services firm Edward Jones.
With the ever-rising cost of college -- above the rate of inflation -- and not as many scholarships as you think available that will cover all the costs to get through four years of college or more, you'll need a plan to save.
There are two types of 529s: prepaid tuition plans and savings plans. The first allows people to pay a child's tuition in advance. The more popular second type allows for saving through a tax-advantaged investment account. Earnings in a 529 grow tax-deferred and are free from federal tax (and in most cases free from state and local taxes as well) when used for qualifying college costs.
Every state and the District of Columbia now offer at least one 529 plan. Although the 529s are state-sponsored, you can invest in any of them regardless of where you live. But many states offer a tax deduction for residents who use their own state's plan. Money invested in a 529 can be used for a public or private institution.
My oldest daughter Olivia graduates from high school this week (Hallelujah!), and as I sit in the stands watching her walk across the stage, I won't be worrying about how we will afford her college education. I can't tell you how relieved that makes us feel.