You’re not alone if the thought of a college education’s price tag makes you sweat.
In 1980, the annual cost of a 4-year college (including tuition, room and board, and other fees) was $10,231. In 2020, that price took a 180% jump to $28,775.
And that’s just for public institutions! If your child dreams of attending a private school, the average price is $48,965.
But have no fear, Louisiana residents! A Louisiana 529 Plan can help you maximize your college savings so you can use your hard-earned dollars in the best way possible.
Ready to see how a Louisiana 529 Plan can help you save for college?
What Is A 529 Plan?
A 529 Plan is a savings plan with tax advantages designed to help pay for educational costs.
There are two major types:
- Education Savings Plans
- Prepaid Tuition Plans
Any funds saved through an Education Savings Plan grow tax-deferred. And as a bonus, as long as funds are used for qualified educational expenses, withdrawals are also tax-free!
Prepaid Tuition Plans allow account holders to pay current tuition rates for future attendance at designated universities. You heard that right! Using a Prepaid Tuition Plan allows you to lock in a (likely) lower cost of tuition at the time of enrollment rather than when your child attends the institution.
In addition, anyone can open a 529 account, and sometimes, even accounts from different states (more to come later).
How Do 529 Plans Work?
If 529 Plans are one thing, they’re user-friendly!
Let’s first look at the more common type of the two, Education Savings Plans. Any funds contributed into the account by the owner are invested into a pre-set selection of investment options (typically mutual funds). The funds will grow depending on how the investments perform over time.
Education Savings Plan funds can be used tax-free for qualified educational expenses. Those are:
- Tuition
- Room and Board
- Other fees or related expenses
Prepaid Tuition Plans are a little more challenging to come by as only certain states and higher education institutions offer them.
Their specific parameters vary by state, but they typically allow you to lock in tuition at the current rate when the account is opened.
Because of inevitable rising educational costs, Prepaid Tuition Plans also grow in value over time. Withdrawals used to pay for tuition aren’t taxable, but Prepaid Tuition Plan funds cannot be used to pay for room and board.
What Makes Louisiana’s 529 Plan Different?
We’ve already mentioned that most states in the US offer 529 Plans, and that their specific rules vary. But did you know that Louisiana offers one of the best programs for residents to save toward the cost of college?
The Louisiana Student Assistance and Revenue Trust Program (START Saving Program) is direct-sold, meaning there’s no middleman between your funds and the plan itself. In Louisiana, you get to work directly with the state Office of Student Financial Assistance with your plan.
Louisiana’s program lets you get the most out of your saved funds. The program doesn’t charge administrative or other fees and utilizes low-cost Vanguard funds. This, ultimately, means more money for your child to use for educational costs.
As if the tea couldn’t get any sweeter, there’s more! Louisiana also offered a savings match between 2-14% depending on the account type you choose and your adjusted gross income (AGI). Think about how a 401k plan match works! It acts like a Roth IRA with a state match for education savings!
Lastly, Louisiana provides a state tax break for account owners based on the amount of contributions made within the year.
The Benefits Of Using A 529 Plan To Save For College
Why go to the trouble of opening a 529 Plan for college savings? Let’s quickly break it down:
- 529 Plan withdrawals are federal tax-exempt (as long as they’re used for qualified expenses. In Louisiana, they are also deductible from your state income tax.
- 529 Plans have high contribution limits.
- 529 Plans are easy to open and maintain.
- 529 Plans accrue value over time.
Will A 529 Plan Affect My Child’s Eligibility For Financial Aid?
One of the biggest questions surrounding 529 Plans is if they will affect your child’s financial aid.
The short answer is that it does, but it depends on who the plan owner is.
For example, if the child or their parents hold the account, it’s considered income on the FAFSA. If the account is owned by a grandparent or anyone else besides the student or their parents, it won’t be considered income for the FAFSA.
Further information on the effect of 529 Plans on financial aid can be found here.
Ready To Jumpstart Your College Savings?
If you’re ready to maximize your college savings with a Louisiana 529 Plan, there’s no better time to start!
As long as you’re a resident of Louisiana at the time of the account opening, you’re eligible! You can find the online application here.
If you’re looking to think seriously about your money, we’re here to help. We look forward to the opportunity to help you create a financial life plan that matches your values and puts you on track to exceed your personal and financial goals. Please reach out to us today.