All young parents in the United States of America know one thing for certain – education is fast transforming into a luxury to be enjoyed by a select few in the near future. They are also aware that college education is getting expensive ever year. The average annual cost, including tuition, fees, room and board expenses, for a four-year public college is $17, 860 for the 2012-13 tuition year. Similarly, a four-year degree from a private college can cost up to $39, 518. Nonetheless, there’s no reason to fret as long as the option of college savings account for kids is available.

Case studied

A study published by JAMA Pediatrics shows that kids who grow up with the knowledge that a college savings account has been entirely dedicated to them, are in a better position to reap maximum benefits in terms of personal development.

The study was conducted on 2,704 infant participants in which half the participants were provided with state-issued Child Development Accounts (CDAs) accompanied with bonus financial incentives, while the other half received nothing. After a lapse of four years, the mothers of the study participants filled in a questionnaire related to their children’s social and emotional behaviors. The results showed that families that had setup savings accounts for kids narrated positive social and emotional development in children than the families falling into the non-savings account group.

The researchers believed that availability of money kept the hopes of parents alive, due to which they invested more time and effort in their children.

Plan # 529 for a rainy day

The ‘529 plan’ is a college savings account strategy for setting aside money on a monthly basis to enable an individual to obtain higher education. The number 529 is a reference made to the section of the IRS code that administers savings plan.

A college savings account comprises of prepaid tuition plan and savings account. The latter plan is more popular with parents who aspire to send their kids to college and give them a chance at a bright future.

Piggy bank just got better

A college savings account has many advantages and the important ones are as follows:

• The tax cut incentives associated with a savings account makes it an attractive package for parents. If the money is used entirely on college tuition, then no income tax has to be paid on the interest and earnings coming from the savings account. Interest earned on a regular savings account, on the other hand, is not tax free.
• Savings accounts are usually known to be very flexible and require the minimum possible amounts to add up every month to keep the account running. Some accounts have the minimum mark set at $15/month to prevent it from closing down completely.
• The money can be used for all essential college expenses, including room, books, tuition fees etcetera. One thing more – these assets are protected from liquidation if you ever file for bankruptcy.