It’s tax season, and that means tax refunds are on their way for many. Getting a tax refund is always a happy event. Our minds immediately start calculating how to spend that money. For those who receive tax refunds, a big purchase like a new TV, travel, or a splurge purchase may sound tempting. Saving for college may not be the first item on your list, but it should be. College tuition and related expenses increase every year. In fact, according to US News & World Report, annual average tuition is:

• More than $10,000 for in-state public colleges

• Upwards of $38,000 for a private college

• Approximately $55,000 for our nation’s most prestigious colleges

Don’t let these numbers get you down. There is a solution: a 529 education savings plan with The Education Plan®. Invest that tax refund now and those numbers won’t be so scary when it comes time to pay for your children’s higher education.

Convenience

Anyone can open a 529 account at any time, with any amount, with contributions from any person, including loved ones and family friends. Grandparents, in particular, may want to help finance their grandchildren’s educational goals, so they can start their adult lives with a financial advantage. Their contributions and yours are compounded, meaning that your earnings are reinvested, so the money in the plan increases over time. Investing your tax refund gives your account a nice financial boost, without much effort on your part.

Tax Benefits

You do not have to pay federal taxes on earnings and withdrawals with a 529 education savings account, as long as they are used for qualified education expenses. Even better, New Mexico provides an unlimited state tax deduction for contributions to The Education Plan, the state’s official 529 plan. If you are a New Mexico resident, that means you can claim a state tax deduction on 100% of contributions to your 529 plan from your state taxable income every year. Even if you are not a New Mexico resident, you will still receive the federal tax benefits; however, make sure to check your own state’s taxation rules, as income tax treatment of 529 contributions and withdrawals may differ.

Comprehensive Coverage

With a 529 plan, there is no tax on withdrawals for “qualified education expenses.” Such expenses include tuition, room and board, books and supplies, lab materials, and special needs equipment. Computers, mouses, speakers, software, even the internet are considered qualified education expenses, if needed for course work. The funds in the account can be used for virtually any kind of schooling: undergraduate universities and colleges, community colleges, vocational schools, graduate schools and professional schools. Even some international schools qualify. Items not covered include transportation, cell phones, and fees for extracurricular activities, such as sports and clubs. Just make sure you use your 529 savings for qualified higher education expenses; otherwise, your withdrawals will be subject to income tax as well as a 10% tax penalty.

Control

With The Education Plan, you are in control. You can invest aggressively, moderately, or conservatively, depending on your needs and desires. The way you want to contribute to your 529 account is also up to you, whether you prefer an automatic monthly withdrawal from your paycheck or regular monetary investments such as tax refunds. It’s your money, so you can access it at any time for qualified higher educational expenses.

Remember: If you already have a 529 education savings plan and have taken disbursements throughout the calendar year for qualified education expenses, you need to document these carefully. Detailed record-keeping – saving receipts, account statements, and canceled checks – for at least three years is essential in case the IRS asks for proof of your qualified education expense withdrawals.

Investing your tax refund in a 529 education savings plan may not be glamorous or provide instant gratification, but it is a simple and effective way to increase your children’s college savings. By planning ahead, you can help reduce the cost of higher education so your children are not distracted by excessive loan debt and can focus instead on their studies and their future.