It’s that time of year again – back to school sales, bus drivers practicing their routes, and staff getting classrooms ready for their new students. These are the early reminders that the first day of school is just around the corner. With education on the mind, this time of year can also bring about questions and concerns regarding the future cost of college.
There are several reasons why having a post-secondary education can be beneficial. Having a college degree may open more doors for employment, career advancement, and greater earnings. According to the Social Security Administration (ssa.gov) “Men with bachelor’s degrees earn approximately $900,000 more in median lifetime earnings than high school graduates. Women with bachelor’s degrees earn $630,000 more.” The website also states that for those with graduate degrees, men earn $1.5 million more and women $1.1 million more. (And, if you’re ever hoping to become a CERTIFIED FINANCIAL PLANNER™ professional, a bachelor’s degree is a requirement!)
However, the cost of a college education continues to increase. This graph from collegeboard.org illustrates the increases over 20 years ending with the 2017/2018 academic year. The difference between the solid line and the broken line is the published rates versus the net cost after the average grant aid and federal tax credits and deductions.
These statistics highlight the importance of saving for your child’s post-secondary education. The problem is that many people are unsure of how to go about it. As a result, student loans become the default. According to savingforcollege.com, “Two-thirds (69%) of Bachelor’s degree recipients in the class of 2019 graduated with federal and private student loans, an average of $29,900 per borrower.” That is a significant burden to shoulder as young adults begin their next chapter in life.
We help our client families plan for the growing cost of college by advising them on their options. A 529 college savings plan is often one of the go-to tools in the financial toolbox. Here are some key details to understand about the Oregon College Savings Plan and why it may be a good option for your family.
Tax Efficient Savings for College
529 college savings plans allow investments to grow tax free until a student is ready to withdraw funds. When funds are withdrawn for qualified college expenses like tuition or housing, the funds dispersed from the plan are also tax free. To learn more about 529 plans broadly, check out our recent blog post on the topic: Using a 529 Plan to Save for College.
The Oregon College Savings Plan offers another tax benefit. Oregon tax payers can receive a state income tax deduction. For 2019, individual taxpayers are allowed to deduct up to $2,435 ($4,865 if filing jointly) for contributions made to any account in the Oregon College Savings Plan, so long as contributions are made prior to filing your state tax return that year.
Education Flexibility
When some people hear about state college savings plans, they are concerned that the account may limit their options to in-state educational institutions. According to oregoncollegesavings.com, “Funds can be used for any post-secondary institution that is accredited throughout the United States and internationally, meaning the school is eligible for federal financial aid. This can include a university, college, community college, trade school and graduate school.”
There are many expenses that college students incur beyond just paying class fees. Funds from a college savings plan can help. Some of the most common qualified expenses can include:
- Tuition and fees at eligible educational institutions
- Books and software
- Supplies and equipment (e.g. computers, software, printers etc.)
- Certain room and board expenses
Easy to Start and Grow
Another concern that often comes up with college savings is the cost of getting started. Because of this, people are often paralyzed by inaction and end up kicking the can down the road until it’s too late to build a significant savings amount. With Oregon College Savings Plan, getting started and regularly contributing is easy.
An account can be started for just $25 and regular contributions can be made in small increments to fit within most household budgets. As an example, a $25 initial investment with $25 monthly contributions at a 5% rate of return can grow to nearly $9,000 after 18 years of investing. That is a significant savings with just small monthly contributions.
In fact, the Oregon Department of Treasury recently launched a new initiative: Kinder Grad. As a way of encouraging more people to sign up for a 529 plan early, they’re offering a $25 initial deposit to new accounts. For more information on Kinder Grad, click here.
It’s a Family Affair
When you think about saving for college, you probably think of parents contributing on behalf of their kids. However, saving for college can be a family affair. The Oregon College Savings Plan allows any U.S. citizen or resident to participate in helping a child build a college savings account. Grandparents often contribute, but any family member or friend can become involved to help save for a child’s future.
Low Management Fees
There are costs to keep an Oregon College Savings Plan account up and running. The fees for the plan have been kept low to help families grow their investment towards the child’s education. Currently the annual administration fee is 0.25% of assets per year. The plan offers a range of investment options including those that automatically transition to a more conservative portfolio as college gets closer, and 14 options that are static. The cost of the various investment options currently range from 0% to 0.466% of assets per year. With such low management fees, choosing an Oregon College Savings Plan may be friendlier than you think.
Ready to Learn More and Start Saving?
As the old investment saying goes, “Time in the market beats timing the market.” There is no better time to start saving for a child’s education than today. With regular contributions growing over time, saving for college can be affordable, simple, and effective. We help client families from all walks of life navigate the realities of saving for college. The trends that show increasing college tuition costs are something that simply can’t be ignored. Whether your child is just learning to walk or they are only a few years away from walking the stage at their high school graduation, the Oregon College Savings Plan can be a good addition to your financial toolbox.
Disclosure: Information in this article is for general information purposes only. It is not intended to provide tax or legal advice. Any rate of return used in this article is for illustrative purposes only and not guaranteed.
