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Celebrate College Savings Month with a 529 Contribution
In 2003, the U.S. Congress declared September College Savings Month, a national effort to encourage families to start thinking about and saving for higher education. It’s a great month to consider the costs of college and an ideal way to help your child reach their academic and life goals without overwhelming debt.
Opening and contributing to a 529 education savings account with The Education Plan® is a smart, tax-advantaged way for families to better prepare for future education expenses and reduce the burden of student loan debt.
How to Save
It’s best to start with a budget and make sure you include college savings as an important source. Separate your college savings from your other funds by placing them in a 529 account. A 529 account with The Education Plan provides federal and state tax advantages. Contributions grow tax-free and future withdrawals are also tax-free as long as they are used to pay for qualified education expenses. New Mexico is also one of only four states that allows residents to claim a state income tax deduction on any contributions to its in-state 529 plan when the funds are used for qualified education expenses.
Family and friends may contribute to the account through the Ugift program or even open their own accounts for your children. Setting aside lump sums, such as tax refunds, bonuses, and inheritances, as well as regular payroll deductions, can jump-start the growth of your account. Contribute as much as you can and start early in your child’s life, even when they are newborns. Starting when your children are in high school or any time in their lives is fine too: whatever you save will ease the debt burden for you and your child. Discuss with your child the benefits of contributing birthday and graduation gifts into a 529 account.
How to Spend
Withdrawals from the account may only be for qualified higher education expenses; this means materials for online classes too. Qualified expenses include tuition and fees, room and board, special needs equipment, some study abroad programs, and other expenses required for course work. Also included are such items as textbooks and notebooks, laboratory materials and safety equipment. Computers, internet, and related “peripheral equipment,” including mouses, speakers, and software, are considered qualified higher education expenses as well, but they must be used by the beneficiary primarily during their enrollment years. Items not covered include transportation, application and testing fees, extracurricular activities, and health insurance (unless it is part of the tuition fee).
Note also that your student must be enrolled at least part-time in order to make tax-free withdrawals of the 529 account, and that withdrawals made for non-qualified expenses are subject to tax and a 10% penalty.
A report by Sallie Mae notes that 90% of parents believe their child will attend college, yet only 40% have started saving for it. Don’t be caught off-guard!
This College Savings Month commit to saving as much as possible to achieve this important educational milestone.