While it’s no secret that college costs have increased much faster than inflation, how to best pay for them is still a mystery to many, given the current student debt burden.

According to the College Board, the average four-year costs nationwide in 2014-2015 are $18,943 for an in-state public university and $42,419 for a private college. While costs may vary widely from state to state and depend on how much you actually plan to pay, the earlier you start saving, the better.

A 529 plan – Q&A allows you to save for college for an individual by investing in various funds with taxfree growth and tax-free withdrawals, as long as the funds are used for qualified higher education expenses. As an added benefit, 529 plan earnings aren’t subject to the 3.8% Investment Income Tax on a regular savings/investment account.

While you can choose any state 529 Plan, most states offer a tax advantage for their own state’s plan. Because you can easily change the beneficiary later, they can be great for multi-children families where not all the children may be planning on going to college. Accounts owned by other family members won’t effect the student’s federal aid and college aid, so grandparents, aunts and uncles can also fund a 529 account.

Because 529 plans allow for equal installments over five years, these are also great for estate planning. Up to $70,000 (single) or $140,000 (married) maximum is allowed for 2015.

Contact us with any further questions you may have. Make 2016 the year you setup a 529 plan or other savings vehicle to begin preparing for your child’s future.

For more information, contact Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your bookkeeping, accounting, taxes (personal & business) and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kenmore, Mill Creek and surrounding areas.