Paying for college takes dedication. A savings shortcut doesn't hurt, either.
That's why more families are taking advantage of 529 college savings plans.
Not only can you get a tax deduction or credit for contributions (more than 30 states and the District of Columbia offer a direct state tax deduction for your contributions), earnings grow on a tax-advantaged basis and, when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books and room and board.
The new tax law even expanded the use of plans to include private-school tuition from elementary through high school. Families now have the option to use up to $10,000 in annual tax-free 529 plan withdrawals to cover those early educational expenses.
Total investments in 529s reached a record $328.9 billion this year, up 3 percent in the last six months, according to the College Savings Plans Network.
The average account size also rose to $24,153 in the first half of 2018, up from $24,057 at the end of 2017. (See the chart below from the College Savings Plans Network.)
"It means people are getting serious about it; that's a good sign," said James DiUlio, the network's chairman.
Despite the tax benefits, fewer than half, or 44 percent, of parents are saving for college in a 529 account as of 2018, according to a separate survey by T. Rowe Price. On the positive side, that's up from 27 percent last year, when more parents opted for a simple savings account.
And while 529 plans have been growing, so have college costs.
Overall, families with students in four-year private colleges spent almost $47,000 in 2017-2018; that's up 3.5 percent from the year earlier, according to the College Board.