7 Benefits of College Savings Accounts
Figuring out how to pay for college can be daunting, but a great education is priceless, so it’s worth it for families to plan ahead. We believe it’s never too early to start planning for a college education with an NC 529 Account. Here’s a list of seven benefits of college savings accounts.
Most states, including North Carolina, have a 529 plan — a tax-advantaged education savings plan. With an NC 529 Account, the money you invest may grow over time, and any earnings are free from federal and state income tax when withdrawn and used for qualified education expenses.
Gives You More Options
We may call them “college savings accounts,” but 529 plans have expanded their educational reach beyond college expenses to include K–12 tuition, career/technical education, student loan payments, and more. In the event a student doesn’t use all of their NC 529 funds, the money can be used to boost their retirement savings with a tax-free rollover to a Roth IRA, starting in 2024.
Putting aside money for education also means more options a student has to pursue education after high school. Whether your child wants to go to a private school or a college with a specialty program farther from home, saving for education allows for more opportunities.
Save More, Pay Less
The earlier you start saving for college, the longer your money has a chance to grow. Start by figuring out your end goal. You can use the College Savings 529 Plan Calculator to estimate how much money you want to have saved by the time you or your child attend college. A good rule of thumb is to save about one-third of college costs by the time a child graduates high school. The other two-thirds can come from financial aid, scholarships, and student loans.
Little Effect on Financial Aid
Students are always encouraged to complete the Free Application for Federal Student Aid (FAFSA) and apply for scholarships. In most cases, an NC 529 Account will have little effect on a student’s financial aid.
For example, if a parent holds an NC 529 Account and the student is a beneficiary, the funds are listed as a parental asset for financial aid purposes. Up to 5.64% of the parental assets beyond the Asset Protection Allowance may count towards the Student Aid Index (SAI), which is considered minimal.
Additionally, if a student earns a scholarship, funds equal to the amount of the scholarship can be withdrawn from an NC 529 Account without penalty.
Allows You to Plan Ahead
College savings accounts allow you to plan ahead, so a large tuition bill is less intimidating. The earlier you start saving, the longer you have to prepare for college. Of course, it’s also never too late to start saving.
When you open an NC 529 Account, you can choose from a variety of investment options depending on how aggressive you want to be. Age-based options are professionally assembled, and funds are automatically moved from one investment to another depending on your child’s needs as they grow older.
Others Can Contribute
Don’t take on the burden of saving for school alone. With a 529 savings plan, family members and friends can give a gift toward college savings. Activate a unique gifting link for each NC 529 Account. Share the link with family and friends so they can easily contribute to your child’s account for birthdays, holidays, or anytime!
Many college savings plans give you the option to have money automatically taken out of your paycheck. This makes paying for higher education seamless; and the reality of having to tackle tuition less unnerving. Talk to your employer about the NC 529 Payroll Deduction to automatically put money in your college savings account.
How to Start Saving
Saving for education doesn’t have to be daunting, and neither does opening a K–12 or college savings account. Setting up an NC 529 Account is as easy. It takes just a few minutes and a minimum $25 contribution. Create an NC 529 Account now and start saving for college today.