I'm a high school junior planning to attend college in Pennsylvania, and I'm looking for information on the best education funds available. What are some good options to start saving for college expenses?
There are several effective ways to start saving for college in Pennsylvania, and one of the most prominent is a 529 plan. Specifically, Pennsylvania offers the Pennsylvania 529 College and Career Savings Program, which includes two different plans: the Guaranteed Savings Plan (GSP) and the Investment Plan (IP).
The GSP is a unique type of 529 plan that lets your savings keep up with the rising cost of college tuition. The money you invest is tied to the rate of tuition inflation and its growth is guaranteed by the state. This means that if you save enough for a semester at a state school in Pennsylvania today, you'll have enough for a semester in the future, no matter how much tuition has gone up.
The IP, on the other hand, offers various investment options, allowing you to choose between different investment portfolios based on your risk tolerance and time horizon. It works more like a typical investment account.
Whichever plan you choose, your earnings grow federal tax-free, and Pennsylvania offers state tax deductions for contributions. Since these accounts are specifically for educational expenses, using the funds for non-educational costs can incur penalties.
Another option to consider is an Education Savings Account (ESA), also known as a Coverdell ESA. This type of account also offers tax-free earnings growth and tax-free withdrawals for qualified education expenses. However, ESAs come with lower contribution limits than 529 plans and can be less flexible when it comes to choosing the underlying investments.
Lastly, Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are another way parents and other family members can save for a child's college education. These accounts allow adults to transfer assets to minors and potentially save on taxes. However, unlike 529 plans, money in these accounts can be used for anything that benefits the child, not just educational expenses.
Remember to speak with a financial advisor to decide which plan best fits your needs and future goals.
CollegeVine’s Q&A seeks to offer informed perspectives on commonly asked admissions questions. Every answer is refined and validated by our team of admissions experts to ensure it resonates with trusted knowledge in the field.