The importance of planning for your child's educational future

Whether at a four-year university, a trade school, or a community college, most young people in the United States will move on to some sort of higher education. In fact, around seven out of 10 students enroll in college after graduating high school, and with college comes tuition, room and board, books, laptops, and more expenses.

For many parents, it's not a question of whether or not to create an education savings plan for their children, but rather, how and when to start. The answer? As soon as possible.

Luckily, there are affordable options that, when invested in early, can pay dividends by the time students reach graduation. Take, for example, North Carolina's National College Savings Program, known as the N.C. 529 Plan.

"Most states have their own 529 savings plans, and the 529 refers to the IRS code that authorized these types of accounts. Each state handles them a little differently, but in North Carolina, the tax advantages extend to state taxes as well. So, as long as the funds are used for qualified education expenses, they are not subject to state or federal income tax," said Laura Morgan, vice president of Communications, Savings and Legal Affairs at College Foundation, Inc., the nonprofit umbrella organization which oversees North Carolina's N.C. 529 Plan.

With profitable tax benefits and the potential for market earnings or interest, the N.C. 529 Plan can generate a surprising amount of funds over time if invested in early.

To start an account, information for both the participant and the beneficiary are needed, including names, birthdays, and other personal information. You'll need your own social security or tax identification number to open the account, but you don't have to have those details for the beneficiary to begin.

Enrollment can be completed through the N.C. 529 website and takes only minutes to complete.

The minimum contribution needed to start an N.C. 529 College Savings Plan is just $25, and Morgan said some family members happily give contributions as baby shower or birthday gifts to help the account start growing as soon as possible.

Those who want to continue putting money in every month can authorize a monthly draw from their bank accounts, and some employers offer automatic payroll deductions that pay directly into an N.C. 529 Account.

From there, the money can be invested in different fund options based on personal investment preferences and risk tolerances. The N.C. 529 Plan is a direct-sold plan, meaning it is available to anyone, and a financial advisor is not required to help you invest.

"Within the N.C. 529 Plan, there are several investment options to fit any investment strategy," Morgan said. "Our age-based investment options are very popular because people can select one of three different tracks based on their risk tolerance, and then they can 'set it and forget it.' The age-based tracks invest in more aggressive funds when your child is younger, then as the child gets older and closer to needing that money for college, the funds move automatically, year-by-year, into more conservative options. For those who prefer to select and manage their own investments over time or those who may be saving for K-12 or other education goals, the N.C. 529 Plan offers nine different individual investment options managed by the Vanguard Group as well as a Federally-Insured Deposit Account from the State Employees Credit Union that earns interest and is guaranteed not to lose principal, up to federal insurance limits. This broad range of options provides something for everyone.”

The money in the N.C. 529 Plan doesn't just have to be used for college tuition bills. Students can use the funds in the N.C. 529 for many education-related expenses. That means books, supplies, and equipment like laptops, and even some study abroad costs.

Additionally, recent changes to tax laws now allow 529 funds to be used for more than just college expenses. Funds can also be used to pay for things like trade school programs, cosmetology school, apprenticeships, K-12 tuition, and even certain student loan payments.

"It's never too soon to start saving for education. When children are little, time goes by in the blink of an eye, but in the back of your mind, you're always thinking about your child's future — what do they want to be when they grow up? Well, for most kids, they'll need an education to get there, and an N.C. 529 Account can help pay for that," Morgan said.

And the N.C. 529 Plan doesn't only extend to the student beneficiary. In fact, if the student doesn't use all of the money, it can be transferred to another family member, whether that's another child or a parent who wants to return to school.

For many parents, saving for their children's education can be intimidating. But with an initial deposit of $25, the N.C. 529 Plan gives parents a realistic opportunity to offer their child greater financial and educational freedom.

"Use time in your favor. Many times, families mistakenly believe they have to start saving big and put away a lot of money every month," Morgan said. "But it doesn't take a lot to start saving with the N.C. 529 Plan. Parents can increase their contributions when it's right for their family's budget. They can take advantage of automatic payroll or bank deductions or just make contributions as they are able, like when they receive extra money from a tax return or a bonus at work. Parents who start saving when their kids are young see the savings grow and realize, 'Wow, we're really going to make a difference.'"