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Jim Lentini: 529 college saving and retirement

Business Commentary

Posted: November 15, 2010 4:51 p.m.
Updated: November 16, 2010 4:55 a.m.
 

For some people, due to lack of balanced planning, economic problems and unforeseen issues, their retirement planning is interrupted by the need to pay for college expenses.

A recent report by The College Savings Foundation (CSF) stated that parents who have been using 529 college savings plans are more successful savers than those without them.

Twenty percent of parents with a 529 plan have saved $5,000 to $10,000.  Seventeen percent have saved $10,000 to $25,000, and 15 percent have saved $25,000 to $50,000.

Those without a plan have saved significantly less.

While every 529 holder had saved something, 46 percent of those who did not use a 529 college savings plan — saved nothing at all.

The survey further states, more parents have increased their savings. Fifteen percent say they are saving more for college this year over last, almost double the 8 percent from one year ago. More importantly, those parents are saving significantly more.

Twenty-four percent are saving 10 to 15 percent more than they did last year, and 17 percent are saving 10 to 20 percent more. Why?

The appetite for student loans appears to be less. Although student loans still make up the largest share of financing vehicles for college, they have dropped in importance. The percentage of those using loans has dropped from 71 percent last year to 62 percent this year. For more information, visit www.collegesavingsfoundation.org.

As a result of the economic crisis of the last few years, American families are aware of the need to save more, minimize debt and increase their financial literacy.

“It is clear from the survey findings that parents are shifting their behavior toward greater and more consistent savings”, said the chairman of CSF, Peter Mazareas.

Parents’ confidence in their ability to reach their college savings goals is improving. This has been proven by the increased savings rate in America. Recent reports note that the saving rate has increased substantially since 2005, which will help Americans focus on not only college planning, but also their retirement, and saving for a rainy day.

The Recovery Act of 2009 includes some key changes to 529 plans that may help students and parents planning for college, according to a reminder from the Internal Revenue Service. There are expanded credits and deductions in education.

Taxpayers are encouraged to review their situation and take the tax benefit that offers the most savings. For more information, call (800) TAX-FORM, or see the IRS website.

Check with a financial advisor who offers 529 plans, as 529 College Savings Plans have greatly improved the ways of saving for college. The control parents and grandparents have over the funds invested is more flexible with 529 plans
than the previous savings plan called UGMA (Uniform Gift to Minors Act).

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.

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