Best Plan for College Savings: 5 Reasons You Need a 529 Plan

College Savings Plan Desk

Are you thinking about the best way to fund your child’s college or K–12 education? The good news is that you’re taking this important step to plan for your child’s future. And here’s more good news — a tax-advantaged 529 plan, such as the NC 529 Plan, can help you (and your child) reach those exciting educational goals.

When you open an NC 529 Account, the earnings grow tax-free, and your money isn’t taxed when it’s withdrawn for eligible education expenses, including college expenses, K–12 tuition, or trade school. Here's why they're great investments.

529 Plans Support Multiple Education Goals

One of the most important benefits of the NC 529 Plan is that it’s flexible to support multiple education goals. First, it gives you flexibility about how the money can be spent. For example, you can make a tax-free withdrawal of up to $10,000 per child, per year, from an NC 529 Account to pay for K–12 tuition at eligible primary or secondary schools.

If higher education is your savings goal, the funds can be used for everything from a four-year college or university to community college and trade school. Withdrawals from the account are tax-free when they’re used for eligible education expenses, including tuition, room and board, books, fees, a computer, and more. Recent IRS changes also allow you to use 529 funds to repay student loans.

Another reason that NC 529 is the best plan for college savings is that money not used by one child can be used by another family member. For example, if your child receives a big academic or sports scholarship to attend college, the funds in their NC 529 Account can be transferred to another family member, including a parent. That money could help you change careers or earn a higher degree to advance in your current career.

Sets Your Child Up for Success

group of children in occupational costumes/uniforms

Saving for the future, specifically for education, should be a common goal for the whole family. Start the conversation about the importance of education with your kids when they’re young, and keep the conversation going as they get older. Financial experts say kids as young as 3 can understand basic concepts about money. Saving and planning for the future also helps children develop an understanding that education is an important tool to make their dreams of becoming an astronaut or doctor a reality.

As your child gets older and learns more about money management, talk to them about the funds you’re saving in their NC 529 Account. So, if their career dreams change to becoming a pilot or paleontologist when they grow up, let them know that NC 529 funds will help them reach those career goals too, without taking on a lot of student debt.

Kids can contribute to their education savings success by making contributions to their NC 529 Account when they receive money for a birthday or special holiday. As they get older and start babysitting, mowing lawns, or working a part-time job during high school, they can also contribute a portion of their paycheck to their NC 529 Account and watch the savings grow. Every little bit helps!

Funds Dedicated to Education Are More Likely to Be Spent on Education

As you’re financially preparing for your child’s future educational needs, an NC 529 Account is the best plan for college savings because it sets the expectation with kids that after high school, higher education is the natural next step. We know that people who achieve some sort of post-secondary degree after high school make more money than those who try to navigate the workforce with only a high school diploma. Some research shows this difference can be $30,000 or more each year!

Earmarking funds for college and other higher education goals also make it more likely that you won’t touch that money for a vacation or new car. One of the biggest benefits of saving with NC 529 is that the earnings grow tax-free. And when you make a withdrawal for eligible education expenses, the withdrawal is not taxed. There’s a lot of upside to leaving the money alone until it’s needed for education.

However, the money in the account is yours. If you need access to the funds for a family emergency or other reason, you can make a non-qualified withdrawal. However, the money would then be subject to state and federal taxes, as well as a 10 percent withdrawal penalty.

Automatic Contributions Make Saving Easy

The best plan for college savings will make saving simple for families. We understand that parting with your hard-earned money every month is a big decision. Automatic contributions from your bank account or payroll deduction are great ways to set up your savings and forget about it. The money is automatically transferred into your child’s NC 529 Account, and the fund continues to grow.

Not sure how much money you should be saving every month to reach your goals? Do you want to save enough money so your child can attend a private college, in-state, or out-of-state school? Check out our savings calculator to estimate how much money you want to save and how much you should be saving to reach that goal.

Family and Friends Can Show Their Support for Your Child’s Education

As the cost of college continues to rise, more grandparents are putting money aside to help their grandchildren pay for college. Grandparents can contribute to an NC 529 Account, no matter who owns the account. They can make a one-time contribution, give monthly, or give the gift of education for birthdays and special holidays. Don’t forget about other family members! Anyone can give NC 529 contributions as gifts.

Now that you know why the NC 529 Plan is the best plan for college savings, it’s time to open an account and start saving. Steps for enrollment are quick and easy. You’ll need your Social Security Number, the beneficiary’s information, and a minimum $25 contribution to get started. Still have questions? We have additional resources to help answer your questions.

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