Set A Smart College Savings Withdrawal Strategy
"Financial aid officials help parents and students navigate the waters of paying for college, but one difficult decision is how best to use money saved in a tax-advantaged college savings account known as a 529 plan," according to U.S. News and World Report. "Those rising costs are why Craig Munier, financial aid director at University of Nebraska—Lincoln, says parents need to think about their overall strategy before one penny saved in a 529 plan is withdrawn: how they'll pay for as much as possible over the course of four years. Taking out money before parents and students have a long-term plan isn't a smart move, he warns. 'Many families may be inclined to simply draw down 25 percent of their student's 529 fund balance each year for four years,' says Munier. 'But since college costs, like many other things, have a tendency to go up in price each year, families can offset some of that annual increase in cost by how they draw down a 529 balance.' Experts say families should figure out an annual distribution schedule before the first year of college. Withdrawing a smaller percent early on allows money to grow and for families to pay a larger percentage of later college years, he says. He recommends families use 15 percent of the money in a 529 plan for a student's first year, 20 percent in the second year, 30 percent in the third year and 35 percent in the final year."
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