With the never-ending escalation in the price of a college education, saving to pay tuition and other expenses is more important than ever. For New Yorkers, a new law helps make saving a bit easier.
When you file taxes, you can now split your refund and directly deposit a portion into a 529 college savings plan. A 529 plan is a tax-advantaged method of saving for future college expenses authorized by Section 529 of the IRS code, money can be invested in stock or bond mutual funds or in money market funds.
“The law recognizes the challenges of rising college costs. Saving has advantages over borrowing. Even minimal savings for college encourages a greater participation rate in higher education within that family and, generally speaking, earning a college degree leads to higher lifetime income,” says Jerry Inglet, director of M&T Bank’s College Financial Literacy Initiative in Buffalo.
He applauds the move, “This is convenient. It’s an easy way to boost the balance of your 529 plan,” says Inglet. Additionally, the publicity surrounding the new law may increase awareness of 529 plans.
However, he says, like all investments, 529 plans have pros and cons that are specific to each individual and should be understood before opening an account. “What if a family decides to position all of their New York State tax refund into a 529 but has a subsequent and urgent need for that money for a purpose not related to higher education? When resources are withdrawn from a 529 account for items other than the prescribed IRS stipulated expenses from an accredited college, that withdrawal is subject to a penalty and taxes on the growth of the account.”
That said, there’s much good here, “If the new law prompts more New Yorkers to consider 529 plans, more will be financially prepared for college.”