By: Jeremy Skoglund, VP Trust Officer
College costs have been rising for years and are projected to continue to rise for the foreseeable future. As a parent who wants to see his kids get an education without seeing them burdened by too much debt, I looked at many ways my wife and I could help as soon as they were born. Actually, we started saving for college before they were born. The financial tool that worked the best for us was a 529 Savings Plan.
529 Plans require a designated beneficiary, but that beneficiary can be any family member. We opened 529 Plans for our kids before they were born and put me as the beneficiary so we could start saving early. When they were born and had their own Social Security Number, we were able to put them as the beneficiary. If for some reason, our child doesn’t go on to college, we can change the beneficiary again to another family member.
The funds in the account grow tax-deferred, so any earnings grow tax-free. They will continue to be tax-free if you withdraw funds for qualified educational expenses. Qualified educational expenses include tuition, mandatory fees, books, and other supplies required for enrollment, and certain room and board costs. If you are a North Dakota taxpayer, you also get a state tax deduction in the amount of your contribution up to $5,000 ($10,000 for married couples) each year.
Students can go almost anywhere
The funds can be used at any eligible 2- or 4-year school in the U.S. or even abroad. In North Dakota, you can even use the funds for K-12 tuition.
529 Plans were really our backup plan. The primary way we hope our kids will pay for college is through scholarships. If they end up not needing the 529 Plan funds due to scholarships, we would be able to withdraw funds equal to the scholarship amount for whatever reason we want without paying a penalty. We would have to pay taxes on the earnings, though.
If you would like more information on 529 Plans or on other ways to save for college, give us a call at (701) 857-7150.