Santa Fe, NM - March 30, 2022 – April 18th is right around the corner, and for many people, it means they will receive a tax refund. Putting those refunds into a 529 education savings plan is a great option to reinvest those funds and make a difference in paying for higher education in the future.
Investing in a 529 plan can provide significant tax advantages. The money invested in the 529 grows tax-free and withdrawals are tax-free when used to pay for qualified education expenses. Many states also offer deductions on state income tax for contributions to a 529 plan.
“Tax advantages can be one of the biggest benefits to saving for college expenses in a 529 plan,” said Natalie Cordova, Executive Director of Education Trust Board of New Mexico, the state agency that administers The Education Plan® 529 savings plan. “A 529 plan can be used to pay for higher education for a loved one or for one’s own education”
Money in a 529 plan may benefit from the power of compounding interest, unlike a traditional savings account. Savings can grow significantly over time in a 529 plan, especially when investing early. Hypothetically, a family with an initial investment of $1,000 who puts $150 per month into a 529 plan has the potential to earn around $10,000 more over an 18-year period than putting it into a traditional savings account.
While regular contributions provide the biggest impact on account growth long-term, any contributions that fit into your budget will make a difference. Family and friends can also give a gift contribution to your 529 account through a one-time gift or a recurring contribution.
A 529 also increases the likelihood that a child will attend and graduate college or vocational school. According to the Center for Social Development, a child is three times more likely to participate in higher education and four times more likely to graduate with just $500 saved.
As the cost of college continues to rise, tuition is only one of the many higher education costs. Other costs include room and board, books, computers and supplies. 529 plans can also be used to pay for those additional educational costs. According to CollegeBoard 2021, the average annual cost for a full-time student at an in-state, 4-year public university is now over $27,000 including non-tuition expenses. CollegeBoard also states that, since 2010, accessibility to financial aid has decreased by 12%, while costs have increased by 15%.
“Families are increasingly looking for options to pay for college without going into debt,” added Cordova. “A 529 plan is a terrific option, and this tax season, we encourage you to consider investing your tax return in your family’s future. Celebrate steps toward a more solid financial foundation for you and your family by investing your tax return in a 529 plan annually.”
A 529 plan can be started for as little as $1, and families do not have to live in New Mexico to open an account with The Education Plan®.