This article was originally published at The HumbleDollar
INVESTING FOR education costs has never been more popular, as evidenced by recent Morningstar data. The research company found that 2021 was a record-breaking year for assets in 529 college savings plans.
At almost $500 billion, total investments are up nearly fourfold over the past decade.
A big reason is the tax advantages—investments grow tax-free if they’re used for qualifying education expenses—plus 529 accounts are treated relatively leniently under the college financial-aid formulas.
You can learn more about the accounts from other authors who have real life experience saving through 529 plans.
There are also compelling investment reasons to contribute to a 529 savings plan for your children or grandchildren. Today’s lower stock market valuations and higher bond interest rates should help families investing through 529s in the years ahead.
Many 529s feature investments that take a target-date fund approach, similar to the TDFs found in many 401(k) plans.
These core investment options are age-based. There’s a heavy focus on stocks early on and then the asset allocation gradually shifts to bonds as the youngster approaches college age.
That means that families across this “glide path” should reap the reward of today’s more favorable outlook for stocks and bonds.
On top of that, 529 investors can enjoy relatively low fees. Morningstar found that the average annual cost of a “directly sold” age-based plan is just 0.34%, or $34 a year for every $10,000 invested.
What about plans sold through advisors? They cost families an average 0.84% annually. The implication: You can save a significant sum by simply buying a low-cost direct plan.
Want to research 529 plans? Head to SavingforCollege.com. You don’t have to fund a plan that’s earmarked for your state, but sometimes there are state tax advantages to doing so.