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  • Evan Werckenthien

National 529 College Savings Day

Updated: Aug 4

Do you know what type of debt is the second largest in the United States?  Difficult to make this suspenseful given the title of this article—but hey, I will still try.  There are over 44 million Americans averaging about $37,000 of…. student loan debt.  That 1.3 trillion dollars in student loans has nearly quadrupled over the past ten years, according to the federal reserve bank of New York.  Given that May 29th was National 529 College Savings Day (5/29), it is a good time to discuss education planning.


Education planning is the process of creating a realistic strategy for education expenses.  There is a misconception that it has to be an all or nothing plan.  Either pay for 100% or none at all.  In actuality, any savings for education is better than none.  It is important to create a funding objective such as a percentage of tuition you would like to pay for or a specific monthly dollar amount to save.  Creating a plan will also establish balance to ensure other financial goals are not sacrificed (retirement).  As I have always said, the most important aspect of planning is to have a plan in place and follow it.  More information on the rising cost of education, college investment accounts, and the benefits of planning ahead are outlined below.


According to the College Board Trends in College Pricing 2016, the rate of tuition increased over 8.0% annually from 1958 – 1986.  That means the cost of tuition would double every nine years.  *Make sure to keep breathing—we will get through this paragraph shortly. *  The tuition inflation rate remained high for the next 15 years.  However, the past five years has seen a lower rate of only 3.2% at public universities.  With an annual 3.2% increase of tuition, expenses would only double every 22 years. *Exhale*  More positive news: there are some compelling reasons to believe tuition inflation rate will stay closer to 3% than 8% over the next decade.


What is the most efficient way to save for education?  A 529 plan! (Again, not very suspenseful.)  You probably also can guess why it is called a 529 plan?  That’s right, it’s named after section 529 in the tax code (original).  It is an investment account tailor-made to save for post-secondary education expenses.  Post-secondary can include education at colleges, universities, community colleges, technical schools, or any organization recognized by the department of education.  Qualified 529 expenses include tuition, room & board, books & supplies, and other fees.  


The benefits of using a 529 plan include:

  1. Tax deferred growth as future growth is not taxed as long as it is used for a qualified college expenses.

  2. Investment options range from money markets (low risk) to more growth oriented funds (higher risk).

  3. State tax credit of 20% on contributions; this is capped at $1,000 per year.  For example, if you contribute $5,000, you may receive a $1,000 state tax credit.  If used properly, this could reduce tuition in theory by 20%.

  4. Low minimums as a 529 account can be opened with just $25.

  5. Friends and family can make contributions, which is great for birthday parties and holidays.  This also makes it easy for parents or grandparents to help save.

In an effort to try and not alienate half the state in this example, I will take the average four-year cost of tuition at both IU and Purdue.  In 15 years, with a college inflation rate of 4%, the tuition cost would be $80,300.  If that full $80,000 was financed with student loans, it would create a monthly payment, after graduation, of $850 for ten years.  Plus, tack on an extra $21,000 in interest paid during those ten years.


If that $80,000 was saved in a 529 plan before attending Purdue/IU, it would cost only $233 each month for fifteen years (assuming 6% return, which is not guaranteed).  That $223 monthly may also generate an annual tax credit of $535 for residents of Indiana.  The tax credit of $535 for 15 years would be a whopping $8,025!  That shows the enormous difference planning ahead can make with education expenses.


The earlier you can start saving for college, the better.  $25, $50, or $100 a month all will help when that first bill arrives.


Please contact me for more information about the specifics of 529 plans or to get started creating a personalized education plan.


Evan Werckenthien, CFP©

Evan@Ewwealth.com

Work: 317-587-0858

Cell: 317-627-2529

  1. http://www.finaid.org/savings/tuition-inflation.phtml

  2. https://trends.collegeboard.org/sites/default/files/2016-trends-college-pricing-web_0.pdf

  3. www.newyorkfed.org

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Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. EW Welath and Cambridge are not affiliated. The information in this email is confidential and is intended solely for the addressee. If you are not the intended addressee and have received this email in error, please reply to the sender to inform them of this fact. We cannot accept trade orders through email. Important letters, email, or fax messages should be confirmed by calling 317-587-0858. This email service may not be monitored every day, or after normal business hours. Cambridge does not provide tax advice.

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