Consumer Watch: College savings plans grow in popularity
OKLAHOMA CITY (KOKH) —
The number of college savings accounts has been steadily increasing over the years. These investment accounts help pay for qualified higher education expenses, and recent changes to the tax laws make it possible to use the money for some K-12 expenses.
It's never too early to save for your child's college. There are college specific savings accounts that can make the process easier.
To help their kids pay for college, some parents use their retirement account savings, but this is a major mistake. If you plan to save, it should be through a separate account, and there are some tax benefits to using a 529 account.
Each state has its own 529 college savings plan. In Oklahoma you can sign up through the site ok4saving.org. The money saved through this plan can be used for any school in the country that qualifies. The application takes just 10 minutes to fill out.
“The best thing about it is they grow tax differed, and as long as you use those funds later on for college expenses, you don't have to pay any income tax on those earnings,” says Ted Hughes, Hughes Warren Inc. co-president.
To open the account, you need an initial contribution of 100 dollars., and can then set up a monthly contribution of as little as 25 dollars. Though you would need to save more to hit a higher savings goal for college expenses. The money in a 529 will get you a state tax deduction of up to 20-thousand dollars a year, but no federal deductions. If it's used for education spending, you don't need to pay income tax on the funds.
You can choose to have one account per child, or choose to have just one account, though there can only be one official beneficiary of the 529 account at a time.
“You can only list one beneficiary per account. Now if you have one account, and say you have two children, and the first child receives a full scholarship, you don't need the funds, you can then name the second child as the beneficiary to that account, “says Hughes.
You do not have to go to an Oklahoma university to use the money saved in these accounts.
Financial specialists recommend not getting too overwhelmed when it comes to college savings. The recommendation is to save at least 25 percent of the cost of education. If this goal seems too lofty for your financial situation, remember that any savings is a step in the right direction.