There is no “one size fits all” solution for college funding, but a 529 Savings Plan does offer some significant advantages when it comes to funding higher education. These plans can be used by parents, grandparents, and even aunts and uncles.
Advantages of the 529 Savings Plan
Federal Tax Benefits – While the initial contribution is not deductible, your investment will grow tax deferred and be distributed tax free for approved college expenses.
Donor Retains Control of Funds – The planned beneficiary has no control or rights to the funds, which allows the donor to control the timing and amount of distributions. The donor may even choose to take out funds as/if needed.
Low Maintenance – Once you decide the investment model you are comfortable with, you can relax and let the plan manager (set by each state) handle it. Again, since you retain control of it, you can change the investment option at any time along the way.
Simplified Tax Reporting – You won’t receive a Form 1099 to report taxable or non-taxable earnings until the year you actually make withdrawals.
Flexible – You are permitted to change investment options, change entire plans (from one state to another - not tied to your physical location), change beneficiaries, and you could even take the money back out (gains would be subject to tax and a 10% penalty). In addition, funds may be used in state or out of state, with public or private schools.
Substantial Deposits Allowed – Everyone is eligible to participate in a 529, regardless of income or age. Most 529 plans allow substantial deposits in excess of $300,000.
In addition to the standard 529 Savings Plan, there are also Prepaid Plans available. Each comes with their own pros/cons, and we are more than happy to walk through these with you if you want to know more. Invest well!
