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529 College Savings Plan: What You Need to Know

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529 College Savings Plan: What You Need to Know

Many parents today suffer from sticker shock when they learn what it costs to send their children to college. The price for higher education in this country has grown astronomically to the tune of $33,480 for tuition at a private university and nearly $25,000 for out-of-state residents attending a public university, according to the College Board’s estimate of average 2016-2017 school year tuition and fees1. Tuition has increased almost four percent at private schools and nearly three percent at public universities—and those numbers are up nearly five percent over the last 10 years2. And, these fees do not include room and board, books, etc.

Whether you have a baby, high school-aged child or intend to help your grandkids, it may be time to get familiar with a 529 College Savings Plan. Interesting fact about the “529” part of the plan—which comes from that part of the tax code where the provision lives—is that some have dubbed May 29th “National 529 Day” (the fifth month and 29th day). While it’s no Cinco de Mayo, the cost of college can be a hard pill to swallow and this commonly used college savings plan has offered parents and their college-bound kids tax-free withdrawals to pay for college. Whether you decide to consider a plan on May 29th or any other day of the year, here is the information you need to know about a 529 College Savings Plan:

What is a 529 College Savings Plan?

Also known as a “qualified tuition program,” a 529 Plan allows an individual to save for higher education expenses for a determined beneficiary. Anyone—whether they are a family member or friend—can establish a 529 Plan for a designated beneficiary. A 529 Plan is provided by a state, an agency of the state or by an educational institution itself. Money invested in the plan accumulates on a tax-deferred basis and distributions used for higher education expenses are tax and penalty-free. Here’s the catch, the funds must be used for approved education expenses. We will want to talk before you invest in a 529 Plan to discuss the eligibility requirements. Some plans will only allow savings to be used to pay for college depending on the investor’s designated state, for example.

529 College Savings Plan vs. a trust

If you are considering establishing a trust for your child to pay for college instead, be aware that most trust funds may not be an effective means of sheltering this cash from the financial aid process—if your child will be applying for aid. It could actually backfire as trust funds can be counted in the financial aid process as an asset of the child. This could affect your child’s eligibility for aid. A potential work around could be established if the trust was restricted to withdrawing just the principle for the beneficiary.

What does a 529 cover?

While 529 Plans do have to be used for qualified expenses, it’s surprising how much they can actually cover. They can be used to help pay for undergraduate or graduate school, trade or technical schools, even cooking schools and some accredited schools abroad. They can also be used to pay for room and board, books, supplies or other fees.

Anything else I should know about a 529?

You are not relegated to using your state’s 529 plan and can shop around to find the right plan—you’ll just need to factor in fees and of course the performance of the investments. However, you may only be eligible for a tax deduction if you use your state’s plan. You can also open multiple 529 plans, meaning you could hold them in multiple states and won’t be required to consolidate or combine them. Some plans offer a variety of ways to invest including mutual funds, exchange traded funds as well as risk-based or age-based investment options. Finally, there is a high threshold to the limit of these accounts, even going as high as $400,000. In addition, there is no “use it or lose it” factor with these accounts. In fact, 529 owners can change the beneficiary anytime and without limitation.

Give Steve Lindquist a call today at 775-789-3123 to discuss savings and investment strategies to ensure you have the funds to send your child or grandchild off to the school of his or her dreams.

Registered representative offering securities through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency), member FINRA/SIPC.  Cetera is not affiliated with any other named entity. CA Insurance License #0G30574

Investments are not deposits; not NCUSIF insured; and not insured by any federal government agency.  No credit union guarantee.  May lose value.

 

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state’s 529 Plan.

 
1 http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064

2 http://www.savingforcollege.com/tutorial101/the_real_cost_of_higher_education.php

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