10 Benefits To Having A 529 Plan

It seems like there are more and more days that are national this or national that day.  May 15th is National Chocolate chip day as well as National Nylon Stocking Day.  Later this month, it will be May 29th or 529 day.  This day is recognized in our industry since 529 plans are the most popular college savings accounts in our country.  College tuition rates have historically risen about 5-6% per year on average and the price of a four-year public university is estimated to reach $140,000 by the year 2020 and almost double that for a private university.  As many people graduate from colleges around the country this month, some will enter the real world with huge student loans while others will begin the next season of their lives with no debt.  While it’s too late for them to save for college, there may be many of you that still have time to save for college for your children, grandchildren or even great grandchildren.

Here are ten reasons why many parents and grandparents have selected these plans to help invest for their loved one’s future college expenses.

1. It can pay for more than just tuition.  Withdrawals can be used for any qualified higher education expense, including tuition, fees, supplies, books, computers, room and board, etc.
2. You have the ability to change the beneficiaries. The beneficiary can be changed to a member of the immediate or extended family including siblings, grandchildren, nieces, nephews, and cousins.
3. You have control of the assets.  The account owner – not the beneficiary-maintains control of the assets, including how and when they will be used.
4. You have contribution flexibility.  Some 529 accounts allow you to contribute as little as $50 per month to an account.  Most plans allow account owners to contribute up to $300,000 per beneficiary over the lifetime of the account.
5. There is a wide range of schools that accept funds from 529 plans including any postsecondary college, university or vocational schools.
6. There are no income restrictions.  Anyone can open a plan regardless of their income.
7. There are multiple investment options.  Most 529 plans offer a wide range of investment choices allowing you to invest your assets in the portfolio that best suits your college investing goals.
8. As you might expect, many 529 plans offer features that make them a convenient way to save for college, including monthly automatic investment plans and portfolios that automatically rebalance as the beneficiary gets closer to college.
9. The earnings in the accounts growth tax free.  Earnings are free from federal income tax when withdrawn for qualified higher education expenses.
10. 529 plans can help with estate planning.  Five years’ worth of gifts can be made at once to a 529 plan without owing federal gift tax, as long as no other gifts are made to the same beneficiary over the five years.

The primary downside to a 529 plan is that you risk income tax and a 10% penalty on the account earnings if you take out 529 money for a purpose other than college.  Another negative is that there is a possible loss of value of the contributions you make since they can be invested in the stock market and bond market. As with other investments, there are generally fees and expenses associated with participation in a 529 plan. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. The tax implications can vary significantly from state to state.

So while you’re celebrating National Paper Clip day on May 29th of this month, try to remember that saving for college expenses can help tremendously down the road.  Saving for retirement and saving for college expenses for children and grandchildren are two of the biggest goals that clients work with us on.