The best deal in college savings gets even better
“The Direct Plan is making exciting improvements! Starting September 22, the plan is reducing costs, increasing the maximum account balance, eliminating the minimum contribution, and adding six new portfolios within the age-based options.”
Parents in New York state just got this bit of welcome news about paying for their kids’ college educations. If you don’t already know, state-sponsored 529 plans are probably the best place to put away money for college. They allow you to invest without paying federal tax on the earnings, as long as you put the money toward college expenses. The “big improvements” to New York’s own 529 include reducing the annual fees you’ll pay to maintain an account, increasing the total amount you can save, and adding new options so you can invest more aggressively when your kids are young, and more conservatively as they near college age. (You might be doing something similar with your retirement plan.)
The change that really caught my eye, though, was the elimination of minimum contributions. This gets to the heart of why 529 plans are so valuable. Research out of the University of Kansas found that when kids know their parents have set aside money for their college education, they’re more likely to attend. And here’s the thing: It doesn’t matter how much parents have saved. Simply opening a 529 raises the odds that your kid will go to college, because it sends a message to your kid: Higher education is important to your family.
If your state isn’t offering this sweet of a deal, you can choose a 529 plan from another state. Meaning you could take advantage of New York’s plan even if you live in North Carolina. Beware, though: There might be state and local tax benefits for investing in your home state’s plan. No matter where you live, a 529 is a must for all families.
If you want to learn about the astonishing rise of college debt—and how exactly we got here—check out my fancy infographic.