529 savings plans can help fund higher learning

Tassels, caps and gowns – while these sights often trigger high school students’ dreams of higher learning, they may signal a financial nightmare for parents faced with meeting their children’s educational funding needs. And, quite frankly, who can blame them for being concerned? With the cost of a four-year degree expected to increase 165% for both public and private institutions by 2020, according to a recent study by the College Board, meeting education savings goals can be downright overwhelming.

But thanks to the saving opportunities offered by 529 savings plans, it doesn’t have to be. Whether your child prefers to attend cooking school or medical school, 529 plans can help.

Established as "ready-made" investment portfolios, 529 savings plans provide an exciting approach to saving for higher education. Although the benefits of each plan may vary from state to state, the following information may be used as a general guideline:

• Unlimited eligibility requirements. Anyone, regardless of age, can be named as beneficiary to the account. And, if the original beneficiary does not continue his or her education beyond high school, a new recipient can be named – and the change is tax-free.
• Flexible contribution limits. Anyone can contribute on behalf of a specific beneficiary, including parents, grandparents, other relatives and family friends. Depending on which plan is chosen, total combined contributions for each beneficiary can be as little as $25 each month or more than $300,000. Individuals can generally contribute up to $60,000 of that amount in a single year without federal gift tax consequences, provided other financial gifts are not given in a five-year period to that same beneficiary. For married couples, contributions can be up to $120,000.
• Federal tax-deferred earnings. Not only do you enjoy federal tax-deferred earnings on your investment – no matter how long you keep your account open – but withdrawals are federal tax exempt when spent on qualified educational expenses, such as tuition, fees, books, supplies and equipment required for the beneficiary’s enrollment or attendance at an eligible school. Recent legislation has made withdrawals from 529 plans permanently tax-free when used for qualified expenses.
• No income limits. Investors can contribute to the plan regardless of their income.
• Controlled disbursements. Benefits do not automatically transfer to the beneficiary when he or she reaches a specified age. The owner of the account controls all withdrawals, ensuring the funds are used for educational purposes.
• Unlimited choice of schools. Assets can be used at any accredited institution of higher learning in the United States and in some foreign institutions, regardless of where the beneficiary lives. Accredited institutions may include colleges, graduate schools, vocational schools and other types identified by the U.S. Department of Education.

Of course, as with any type of education savings program, there are considerations. Please contact us today so we can discuss them and see if a 529 savings plan is appropriate for you.

Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer's official statement and should be read carefully before investing.

Favorable state tax treatment for investing in a 529 college savings plan may be limited to investments made in a 529 plan offered by an investors home state. Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan.