Education Funds
How much does it cost to attend college in the United States? The average cost for an undergraduate student (one year of tuition with housing) is:
- Community colleges: $33,524
- In-state Public universities: $29,910
- Out-of-state public universities: $49,080
- Non-profit private universities: $62,990
- Private law schools: $74,095.
- In-state public medical school: $36,755
- Out-of-state public medical schools: $62,802
- Private medical schools: $67,000
Multiply the above numbers by 4 and that is the total cost of four years of undergraduate, law or medical school. If your child goes to medical school, the cost of an in-state undergraduate degree with medical school would be approximately $248,180, and the cost of 8 years at a prestigate school would be at least $445,496!
According to statistics, 70% of American college students have student loans, and 1 out of 4 working adults are still paying after 10 years of working. Data from the U.S. Department of Education shows that the per capita amount of student loans is $37,000, and the per capita monthly payment of student loans is $393. The interest rate of student loans ranges from 5%-10%, sometimes even 13% for some people; data also shows that 1 out of 4 people have not been able to pay off their student loans, and the student loans keep accumulating with the interest like a snowball rolling down an endless hill. Many people spend their whole life just paying back their school loans.
529 Plan
A 529 Education Fund Plan is a tax-advantaged savings vehicle that helps investors keep their money in a stable, appreciating account for future educational expenses. 529 Education Fund Plan is named after the Section 529 of the Internal Revenue Code enacted in 1996, and today every state in the United States has at least one 529 plan. These plans are essentially operated and administered by state agencies and large management companies.
When you start investing in a 529 plan, the profits are tax-free and you will not be forced to deduct a portion of the money for tax purposes; the money you invest will grow at a compound interest. In addition, if the money is ultimately used for educational investments, no taxes will be levied when you use it. This includes using the money to pay for tuition, mandatory education fees or books, and so on.
However, if you use the money for any non-educational expenses it will trigger the non-compliance limit resulting in all of the earnings to be subject to federal tax and a 10% penalty on the benefits from the plan used. In addition, you may be required to repay any tax benefits you previously received for investing in a 529 plan.
In addition to 529 plans, many parents will purchase a savings life insurance policy for their child at birth. Because of the child's young age, parents can purchase a product with a high coverage at a lower price. The child may start college at around age 18, and over the course of this 18 years, the cash value in the life insurance policy will accumulate. When the child starts college at age 19, a substantial fund can be taken for the child's college expenses. There are no restrictions on the use of the money withdrawn compared to a 529 plan, and the child can use it for any legitimate purpose. Additionally, the money is not taxable. The policy usually remains in place and can continue to be used for cash value growth, as the child uses the money.
