For most families, saving enough to pay for the costs of higher education can seem overwhelming. However, with some planning, funding a college education can be easier to achieve than you might think. And every dollar saved now for college or training is money you won’t need to borrow later on.
A VHEIP 529 college savings account can help you make a child’s college education possible. See what a difference you can make by preparing for college now.
A college education is one of the most important investments you can make in your child or loved one’s future. Students from families who save even a small amount for education are three times more likely to attend and complete college (Source: Vermont’s Financial Literacy Action Plan).
And the results of that investment continue for a lifetime: Reports show that college graduates experience higher earnings, higher job satisfaction, and healthier lifestyles than individuals without a college degree (Source: College Board). Read more about the value of a college education, and how to create a plan for college.
By contributing now …
By saving early and contributing regularly now, you’ll be better able to help pay for college when your children are ready. Even small amounts can add up over time, as your child grows. Click here for estimates of what a 529 account might accumulate by setting aside monthly contributions for 5, 10, 15, and 18 years.
Because most families are unable to save 100% of the costs for college, students and their parents typically rely on education loans to pay for at least part of the college expense. By putting aside even a modest amount of savings now, families can reduce their reliance on loans, and earn interest rather than pay interest on money borrowed to cover those costs. See how saving and investing for college instead of relying on loans can cut your costs by more than half.
A 529 plan is an education savings plan designed to help families set aside funds for future college costs, with tax advantages to help make saving easier. The plans are named after Section 529 of the Internal Revenue Code, which created these types of savings plans in 1996. Most 529 plans are operated by state agencies. Vermont’s 529 plan, the Vermont Higher Education Investment Plan (VHEIP), is sponsored by VSAC, the state’s higher education agency.
One of the biggest myths of planning for college is that by saving, you’ll hurt your student’s chances for getting financial aid. Actually, putting aside money for college in Vermont’s 529 program can reduce what you need to borrow and pay back in financial aid loans. Plus, Vermont residents can get a tax credit on annual contributions to their 529 accounts.
FACT: Funds saved in 529 plans are generally considered to be a parent asset, so have less impact on financial aid.
Federal financial aid formulas dedicate a fairly small portion of the parents’ assets toward the student’s college costs – a maximum of 5.64% per year. A student’s assets, in contrast, are typically assessed at a rate of 20% in the need-based financial aid formulas.
So for financial aid purposes, placing assets in a 529 college savings plan is preferable to using other types of savings accounts. And because loans are a large part (approximately 60%) of a student’s financial aid package, putting money aside for college expenses can reduce the amount that families need to borrow and repay with interest. Any savings that a family can put away, even in small increments, will help reduce college debt.
See Benefits & Tax Advantages for more about the favorable treatment of savings in a VHEIP account for financial aid consideration.
For more about college costs and financial aid, including how to search for colleges, calculate estimated college costs, or fill out the Free Application for Federal Student Aid (FAFSA) and the Vermont grant, go to VSAC’s Roadmap to College. We’ll help you navigate the way!
Whether your child or loved one is an infant or teen, the sooner you get started, the better chance you have of reaching your college savings goal. Right now is the time to start, whatever the age of your child. Even if a student is in high school or in college, you can still benefit from federal and state tax advantages such as the Vermont state income tax credit on annual contributions.
Start now with small contributions, and contribute monthly. Regular contributions, however modest, make a difference in the long run.
(Source: Adapted from the College Savings Plans Network (CSPN), a non-profit association affiliated with the National Association of State Treasurers (NAST) that brings together state administrators of 529 savings plans. Information is available on CSPN’s Web site www.collegesavings.org.)
As you plan for education after high school, VSAC is here to help!
VSAC was established in 1965 to help Vermonters achieve their education and training goals after high school. We have more than 50 years’ experience helping Vermont students and families get the education they desire.
PDF files require the free Adobe Acrobat Reader. Get it here.
Contributions by check should be accompanied by a completed Additional Contribution by Mail Form or should include reference the VHEIP account number(s) to which the contribution should be applied.×
As Vermont’s official 529 college savings plan, VHEIP is the only 529 plan that qualifies for a Vermont state income tax credit.
A qualifying family member includes any siblings or step-siblings, natural or legally adopted children, stepchildren, parents or ancestors of parents, step-parents, first cousins, nieces or nephews, and aunts or uncles. In addition, the spouse of the beneficiary or the spouse of any of those listed above also qualifies as a family member of the beneficiary.×
Qualified higher education expenses include tuition, fees, and the cost of books, supplies, and equipment required for the enrollment and attendance of the beneficiary at an eligible educational institution, and certain room and board expenses. Qualified higher education expenses also include certain additional enrollment and attendant costs of a beneficiary who is a special needs beneficiary in connection with the beneficiary’s enrollment or attendance at an eligible institution. For this purpose, an eligible educational institution generally includes accredited postsecondary educational institutions offering credit toward a bachelor’s degree, an associate’s degree, a graduate-level degree or professional degree, or another recognized postsecondary credential.×
A non-qualified withdrawal is any withdrawal that does not meet the requirements of being: (1) a qualified withdrawal; (2) a taxable withdrawal; or (3) a rollover. The earnings portion of a non-qualified withdrawal may be subject to federal income taxation, and the additional tax. Recapture provisions apply. See the Disclosure Booklet for details.×
Eligible education institutions are accredited, post-secondary educational institutions offering credit towards a bachelor’s degree, an associate’s degree, a graduate level or professional degree, or another recognized post-secondary credential. Use the Federal School Code Search on the Free Application for Federal Student Aid (FAFSA) website or contact your school to determine if it qualifies as an eligible educational institution. 529 Plan assets can also be used at some accredited foreign schools. If you have a question, contact your school to determine if it qualifies.×
The federal tax act of 2017, signed into law in December 2017, includes provisions related to 529 plan accounts, beginning with the 2018 tax year:
VSAC, as administrator of the Vermont 529 plan, will provide information as details about the Vermont income tax effects are clarified. We encourage you to consult a qualified tax advisor or the Vermont Department of Taxes at tax.vermont.gov concerning federal and state tax implications for tax years 2018 and beyond, and to save documentation for how all VT 529 fund withdrawals are used.×