529 Plans

What is a 529 Plan?

The cost of college is getting more and more expensive. Even worse,  a requirement to achieve some of the most desired professions take more than just a bachelor degree. If you are a parent and your goal is to limit the amount of student loan debt your child potentially could accumulate, I suggest taking a look at what 529 Plans have to offer.

 

529 Plans are state-sponsored plans. Meaning each state has the option to sponsor their own plan. This can be tricky because you are not required to use your state’s plan if you do not wish to.

 

529 Plans have many positives that make them worth considering. Unfortunately, 529 Plans like most investments are not for everyone. Please read the fine print and consult with your tax advisor or financial planner before investing in these vehicles. 

 

Benefits

529 Plans use after-tax dollars to invest. The money invested in these accounts grows tax-deferred. Then when used for a qualified education expense, all the money invested and the growth on that money can be spent tax-free. Best of all there is no set legal limit on the amount you can contribute to a 529 Plan.

529 Plans can be set up for your kids, grandkids, and those you deem worthy of your funds. It is also a good way to request gifts from others who may find it taboo just to give cash.

529 Plans have a feature that will allow you to transfer an unused 529 Plan to another beneficiary. Check the transfer rules of your state administrator for specific steps.

529 Plans can be used to pay for tuition at private schools for kindergarten through twelfth grade.

 

Disadvantages

The money invested in a 529 Plan that is not spent on a qualified educational expense will be assessed a 10 % penalty.

It is easy to be too conservative with these investments. College inflation is around 6% per year. If you plan on keeping up with inflation, consider the appropriate investments to obtain an acceptable annual return requirement.

You should not consider a 529 Plan until you are fully funding your retirement.

All states are not created equal when it comes to the 529 Plans they set up. Take time to review which state plan is appropriate for your situation.

 

I hope you have enjoyed learning about this opportunity to invest in your child’s education. If you want to learn more about 529 Plans, please click HERE to set up a time for us to discuss if this option is appropriate for you.