College is more expensive than ever.
Many current high school grads heading to college in the next few months are unsure how they will pay for a full four years.
But parents of younger children can prepare for this expensive next step by investing in 529 plans offered by their state.
Rhonda Martinez and her daughter, who are touring college campuses, admit they never signed up for a 529 account.
"We just have one child," Martinez said, "so we assumed we would just pay for her school."
Andrew Kadjeski with Vanguard helps to clear up myths and misunderstandings related to education savings plans.
Myth: Can funds only be used for 4-year colleges?
Those misunderstandings start with what funds can be used for, outside a traditional four-year college.
"You can use them for K through 12 expenses," Kadjeski said, "graduate school, trade school, apprenticeships. You can even use money from a 529 to help pay down student loan debt."
Myth: If you don't use it all, do you lose your money?
A 529 fund can also go toward studying abroad, books and new technology.
If there's money left over in a 529, many parents worry the money will be lost.
But Kadjeski said funds are transferable to a second or third child, or even a grandchild.
And thanks to recent legislation, you can even start a child's retirement account with leftover money.
"You can roll over a significant portion to a Roth IRA account for that same child, giving them a great head start to another really important savings goal, of retirement," Kadjeski said.
Myth: Is it smart to gift 529 money to a high school grad?
In the meantime, if you're headed to graduation parties this summer, Kadjeski said contributions make great gifts.
"It's known as the Ugift platform," he said. "Most 529 plans have a connection to Ugift."
He said plans vary by state, but no matter where you live, you don't need much to get started.
Of course, withdrawals not used for education expenses are subject to a penalty — so it's important to understand your plan before you use it.
Rhonda Martinez said if she could do it again, she would set up a 529.
"I would definitely, because college is very expensive these days," she said.
That way you don't waste your money.
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