It’s not surprising that many recent college graduates regret funding their education with loans.
Graduating from college is supposed to be enjoyable – a time full of possibilities with the world at your fingertips. But for many, the road ahead holds massive amounts of debt, putting a damper on finances for years to come.
You can’t protect your kids from everything in life. However, what you can do is protect your child from a difficult financial future caused by student debt. Student debt could not only cause your child to cope with a considerable amount of stress, but it can also cause them to put off getting married, buying a home, or even saving for retirement.
That is why it’s important to remember that every penny you set aside for your children will be one less penny they have to pay back. One great way to do this is with a 529 Plan.
A 529 Plan is a tax-advantaged savings plan designed to save for future college costs. Although they are an excellent way to save for college, there is one large trap to avoid. All you have to do is choose direct-sold plans, rather than advisor-sold plans. There’s a huge difference between the two, particularly in what you will pay to get benefits:
- Advisor-sold plans will often require you to choose whether to pay an upfront sales charge or pay higher annual expenses for investments.
- Direct-sold plans usually come with no sales charge and more reasonable expenses.
The benefits are the same for 529 Plans, regardless of whether you use a financial professional to invest or you send money directly to the company managing the plan. Even better, your earnings grow on a tax-deferred basis, and your earnings are tax-free if you use the account proceeds for qualifying educational expenses. Additional fees for advisor-sold plans may not seem so bad at first. But over a course of 18 years, the cost of getting advice may end up being a lot more than you thought.
The smarter alternative is to go with direct-sold plans. They do require more effort up front because you have to work directly with the company managing the plan, but many plans are easy to understand and come with age-based portfolios.
529 Plans may sound scary, but we do recommend doing your homework so you can do them without an advisor-sold plan. You will feel more confident about saving for your child’s future, and possibly save thousands in the process.
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Categories: College, Kids and Money, Saving