Have College-Bound Kids? It’s Time for Some Major April Decisions.
April showers don’t just bring May flowers. This month brings two major financial decisions that can impact the lives of parents and children for decades. It’s time for graduating high school seniors to select where they will be going to college, and for parents to decide what to do with their tax refunds. If your family is like mine, of course the kids come first, so let’s talk college.
Decision #1: Countdown to college
Students spend many months working to present the best version of themselves to colleges. Extra-credit assignments, extracurricular activities, charitable pursuits — it’s all about polishing those credentials in order to stand out from the crowd. But by spring of their senior year of high school, things change. All of the aspiring collegians know where they have been accepted, the aid they will receive and critical details like who delivers pizza to the dorms. Now, all that is left to do is choose where they will spend the next four years.
The clock is ticking. April is “decision month” for college-bound seniors throughout the country (and their parents). This is because most US colleges and universities have a decision deadline of May 1, meaning that students need to accept their offer of admission (and send a deposit) by that date if they are planning to attend. Obviously, this is an enormously exciting but nerve-wracking task, and it is always important for the family to consider all options during these deliberations.
Now, your children may be working on their ABCs rather than the SATs, but they too will eventually have a decision month. That’s why I recommend funding a 529 plan. 529s are tax-favored education savings plans intended to help families set aside funds for education. Named after Section 529 of the Internal Revenue Code, these plans allow families to set aside money for education. The plans have proven to be very popular (over 13 million accounts now active1), in part because earnings are untaxed at the federal level if withdrawals are used for eligible education expenses.
Another benefit of 529 plans — the funds can be used to meet costs of any qualified institution nationwide. You can live in Illinois, invest in a Rhode Island plan and send your student to college in Texas. This is something to consider before your family faces its own May 1 deadline!
Decision #2: What to do with that tax refund
According to the Internal Revenue Service, in 2017 the average tax refund was $2,763.2 Many consider a tax refund to be similar to a gift in that it is “extra” money that was unexpected. For this reason, it might be tempting to spend this windfall on something fun, like a vacation or a shopping spree.
In reality, a tax refund is not a windfall. It represents money that you overpaid to the government. Now that the government is paying back the money it borrowed, how will you use the money?
Since these funds were not expected, this might be a great opportunity to start or add to a 529 for your children’s education. Annual tuition is now averaging nearly $10,000 for public universities and $35,000 at private institutions,3 and is projected to rise at 5% per year.4 Getting an early start is key to handling the expense of higher education and will help assure your graduates a successful launch into adulthood.
For additional information on 529 plans, visit CollegeBound529.com.
1. Source: Statista.com, “People in households with 529 college savings plans.” Data projected from September 2017.
2. Source: Internal Revenue Service, “IRS sees millions of tax returns last days of tax filing season,” April 25, 2017
3. Source: CNBC.com, “Here’s how much more expensive it is for you to go to college than it was for your parents,” Nov. 29, 2017
4. Source: Savingforcollege.com, “Tutorial – The real cost of higher education,” July 15, 2016
Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program.
For more information about CollegeBound 529, contact your financial advisor, call 877-615-4116, or visit www.collegebound529.com to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other important information; read and consider it carefully before investing. Invesco Distributors, Inc. is the distributor of CollegeBound 529.
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