By Matt Litzler, Family Wealth Planner
Saving for College
May 29th is National 529 Day (5/29), a day created to highlight the importance of 529 savings plans in helping families pay for college or training expenses. For me and many of the parents that we work with, saving for college is especially daunting as costs for degrees continue to rise. A 529 plan can be especially useful for those who place importance on a college education by taking advantage of its unique features.
WHAT IS A 529 PLAN?
529 plans are state-sponsored, tax-advantaged vehicles for qualified post-secondary education expenses, such as tuition, fees, books, required supplies, equipment and room and board. There are two types of 529 plans: savings plans, which allow families to save for expenses, and prepaid tuition programs, which generally allow families to make advance tuition payments to cover future attendance at a designated in-state public college or university system. Most states offer a 529 plan, and some states offer both savings and pre-paid plans.
WHY INVEST IN A 529 PLAN?
One of the main benefits for investing in a 529 savings plan are the tax benefits. Your investments grow on a tax-deferred basis, and earnings are free of federal income tax. Contributions are also eligible for gift tax exclusion if certain conditions are met, and account owners can also remove contributions and future earnings from their taxable estate. In addition, certain 529 plans offer some type of state tax deduction when residents invest in their own state’s plan.
Another major benefit is the flexibility offered by 529 savings plans. Most plans offer low initial investments and a variety of investment options fitting various levels of risk and time horizons. There are currently no income limits to contribute or open an account. Account owners can also withdraw money at any time. Funds may be used to pay qualified education expenses at any qualified educational institution in the U.S. (and some schools abroad), including any accredited public or private college or university, graduate school, two-year community or junior college and vocational and technical schools.
Finally, 529 savings plans provide the benefit of control. Specifically, the account owner decides when and how money in the account is withdrawn, and the account owners can change beneficiaries and investment options, according to IRS guidelines.
HAVE QUESTIONS?
Should you start saving for college if you’re not squared away on retirement? What account should you use? Are there tax perks of an in-state 529 versus out of state? Let us know how we can help you start planning for your child’s future today!
Views expressed are as of the date indicated; they are based on the information available at the time and are subject to change based on economic, capital market, and other conditions. Any investment decision should be based on an individual’s own goals, time horizon, and tolerance for risk.
Prior performance does not guarantee future results and there is the potential for the loss of your capital investment.
