Every year, back-to-school season brings a mix of excitement and anxiety for families across the United States. As students prepare to return to school, parents and grandparents face the growing financial burden that comes with shopping for school supplies and the rising costs of education. From backpacks and notebooks to college tuition, the expenses can be overwhelming. Let’s explore the factors that contribute to these rising costs and how families can strategically plan for the future, especially by taking advantage of 529 plans.

Rising costs for purchasing school supplies

In recent years, the cost of back-to-school shopping has risen sharply. This is due to several factors, including inflation, increased demand for technology and supply chain disruptions. According to the National Retail Federation (NRF), families with children in elementary through high school are expected to spend an average of $890 on school supplies, a significant increase from previous years. For college students, the average spend can exceed $1,200 when textbooks, electronics and dorm supplies are included.

One of the main reasons for this increase is the increasing reliance on technology in education. Laptops, tablets and other electronic devices are now essential learning tools, especially in the wake of the COVID-19 pandemic, which has accelerated the adoption of digital learning platforms.

In addition, the demand for sustainable and high-quality products has driven up prices as parents look for durable items that can withstand the wear and tear of the school year.

Another factor is ongoing supply chain issues that have led to higher prices for many goods. From shipping delays to raw material shortages, these disruptions have created a ripple effect, driving up prices on everything from notebooks to backpacks.

The growing financial burden on education

While the cost of school supplies is a significant problem, it pales in comparison to the rising cost of education itself. Over the past few decades, tuition at both public and private institutions has risen rapidly, outpacing inflation and wage growth. According to the College Board, the average cost of tuition and fees for the 2023-24 academic year is about $10,740 for in-state students at public four-year institutions, $27,560 for out-of-state students, and $38,070 for students at private, nonprofit four-year colleges.

These figures do not include additional expenses such as room and board, textbooks, and personal expenses, which can increase the total cost by thousands of dollars. As a result, many families struggle with how to afford a college education without taking on significant debt.

Preparing for the Future: The Benefits of 529 Plans

With the rising cost of elementary and secondary education, it’s imperative for families to plan ahead. One of the most effective ways to do this is by investing in a 529 plan, a tax-advantaged savings plan designed to encourage saving for future education expenses.

529 plans offer several important benefits that make them an attractive option for parents and grandparents looking to ease the financial burden of college:

Tax Benefits: The biggest benefit of a 529 plan is its tax benefits. Contributions to a 529 plan grow tax-free, and withdrawals for qualified education expenses such as tuition, fees, books, and room and board are also tax-free at the federal level. In addition, many states offer tax deductions or credits for contributions to a 529 plan, further reducing the financial burden.

Flexibility: 529 plans aren’t limited to covering college expenses. Thanks to changes in federal law, funds from a 529 plan can now be used for school tuition, training programs, and even to pay off up to $10,000 of student loans. This flexibility makes 529 plans a versatile tool for families planning for both immediate and future educational needs.

Control and ownership: The account owner, typically a parent or grandparent, maintains control of the funds in a 529 plan. This means they can determine how the funds are invested and when they are withdrawn. Additionally, if the named beneficiary (the student) does not use the funds, the account owner can change the beneficiary to another eligible family member.

Low impact on financial aid: Unlike other savings accounts, a 529 plan has a relatively low impact on a student’s eligibility for financial aid. Typically, only a small percentage of the account value is included in the financial aid formula, allowing students to maximize their aid opportunities while still benefiting from the savings of a 529 plan.

Automatic deposits: Many 529 plans offer the ability to set up automatic deposits, making it easier for families to save consistently over time. Even small, regular deposits can add up significantly over the years and help offset the rising costs of college.

How parents and grandparents can make the most of 529 plans

To get the most benefit from a 529 plan, parents and grandparents should consider the following strategies:

Start early: The earlier you start saving, the more time your investments will have to grow. Even small contributions made when you’re young can add up to a significant amount by the time you start college.

Make regular deposits: When it comes to saving, consistency is key. Setting up automatic deposits will ensure that you add money to the account regularly, allowing you to build savings over time.

Take advantage of your state’s tax benefits: Be sure to learn about the tax benefits your state offers for contributing to a 529 plan. These benefits may include tax deductions or credits that can provide immediate savings.

Invest in low-cost options: Many 529 plans offer a range of investment options, including low-cost index funds. Choosing low-cost options can help you maximize the growth of your savings while minimizing fees.

Monitor and adjust: As with any investment, it’s important to review your 529 plan regularly and make adjustments as needed. This may include rebalancing your portfolio or increasing your contributions as your financial situation changes.

Stay proactive

The rising costs of back-to-school and college education pose a major challenge for families. However, with careful planning and the strategic use of tools like 529 plans, parents and grandparents can better prepare for these expenses.

By starting early, making regular contributions and taking advantage of tax benefits, families can build a solid financial foundation that supports their children’s education without undue financial burden.

At a time when education is more important than ever, a proactive approach to saving and investing is essential to ensuring future success.

This information should not be construed as personal investment advice by any client or prospective client. For more information, please visit BushWealth.com to view all disclosures.