As parents, grandparents and students we know college is coming and that we're somehow going to have to pay for it someday. Fortunately we have many options available to us including savings bonds, the stock market and 529 plans. Starting a 529 account now is always the best option, no matter how old you (or your child) is. While playing the stock market may yield higher returns on your investment, placing your money into a 529 plan allows it to grow in a tax free environment. One study even found that when the federal tax benefits were taken into consideration, 529 plans outperformed their benchmarks in every category.
Alabama has it's own state-operated 529 plan called CollegeCounts 529 Plan. It is important to note that your child does not have to go to a AL college or university in order to use this savings account. 529 plan funds can be used at any accredited college or university across the nation, including some K-12 private schools!
Colleges and universities across the United States experienced increased operating costs of 2.5% in 2019. This most recent inflation figure was down slightly from the 2.9 percent increase in 2018 and 3.4 percent increase in 2017. These costs are forwarded directly to students in the form of higher tuition and living expenses. As these costs steadily rise every year, parents are looking for ways to help offset these future higher education costs.
These rising costs are hitting closer to home in Alabama as well. Alabama's' higher education costs rose by 72.9% in just the last 10 years, ranking as the 5th highest state.
The table below shows the average one-year costs in 2020 for different types of AL colleges and universities.
|Ownership||Degree||Schools||Public Out-of-State Tuition||Public In-State Tuition||Median Debt||Total Annual In-State Cost|
These costs rise every year. Rising tuition is a major driver in these increased higher education costs. Tuition at a 4-year university in AL rose 15% (ranked 29th worst in the US), while a 2-year or trade school increased their tuition by 14 percent.
Alabama offers tax benefits and deductions when savings are put into your child's 529 savings plan.
|For single filers:||$5,000/yr|
|For joint filers:||$10,000/yr|
Alabama offers two 529 plans, the CollegeCounts 529 Fund and the CollegeCounts 529 Fund Advisor Plan. Each Alabama 529 plan is managed by Union Bank & Trust Company, which replaced prior manager Van Kampen during 2010. Both programs feature a menu of investment options utilizing funds from well-known fund companies. Alabama’s prepaid program (PACT) was closed to new enrollments in 2010.
|State Plan Name:||CollegeCounts 529 Plan|
|Maximum Contribution:||$400,000 in combined account balances for a single beneficiary; balances continue to accrue earnings once you hit that threshold.|
|Fees:||0.25% asset management fee|
There are 98,461 registered in Alabama with a total value of $1,923,501,003. That is an average of $19,536 per account. Unfortunately 529 plans are not widely used... a 2018 study by Edward Jones found that only 29 percent of Americans were even aware that 529 savings plans exist!