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529 College Savings Plan (For parents and grandparents)

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Do I need a 529 College Savings Plan?

According to The College Board the price of tuition and fees at a four-year public university rose 6.3 percent between 2012 and 2016 and the cost of room and board rose 7.1 percent. This raises the average total yearly cost of college to more than $16, 000 per year.


Why Should You Save with a 529 College Savings Plan?

529 Plans are administered by each state and each state determines how it will be administered and what investments are available.

  • Earnings not taxed when used for college expenses

  • Deduct contributions from tax

  • Qualifies for gift tax exclusion

  • Possible state tax advantages including tax deductions, matching grants and scholarships

  • Use your funds at any college in the country and at some foreign schools

  • Pay for tuition, room and board, or books

  • Save with FDIC-insured bank products

  • Pay no enrollment fee, no maintenance fee and low administrative fees

  • Transfer funds to another child

  • Withdraw funds at any time

  • Change investment options

  • Professional money management

  • Wide range of portfolios for your investments including Mutual Funds, Index Funds and Actively Managed Fund Portfolios

  • Low-cost investment options

  • High contribution limits

  • No income restrictions


What is the 529 College Savings Plan?

A 529 College Savings Plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary such as a child or grandchild. The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations.

According to the 529 College Savings Plan Network, a 529 plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary (typically one's child or grandchild). The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations.

Each state that offers a 529 plan determines how its plan is structured and which investment options are offered. While most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as a state tax deduction, a matching grant, and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans offered by their state of residence.

There are two types of 529 plans:

prepaid and savings. Prepaid plans (sometimes called guaranteed savings plans) are offered in 18 states and allow for the pre-purchase of tuition based on today's rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.

Savings plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states. 48 states and Washington, D.C. offer a savings plan. Most 529 savings plans offer a variety of age-based investment options where the underlying investments become more conservative as the beneficiary gets closer to college-age. They also offer risk-based investment options where the underlying investments remain in the same fund or combination of funds regardless of the age of the beneficiary. In addition, many savings plans offer a stable value or guaranteed option designed to protect an investor's principal while providing for some investment growth, while others offer investments in certificates of deposit.

With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 College Savings Plans gained their current popularity and tax advantages. Prior to EGTRAA, 529 plans grew tax-deferred and distributions from 529 plans for qualified higher education expenses were taxed at the beneficiary's federal income tax rate. After EGTRAA, 529 College Savings Plans still grow tax-deferred but distributions from 529 plans for qualified higher education expenses are exempt from federal income tax. The 529 plan provisions of EGTRAA, originally set to expire after 2010 due to a sunset provision, were made permanent by the Pension Protection Act of 2006. This permanency means you can save in a 529 plan knowing that your withdrawals for qualified education expenses will remain free from federal income tax! Many states mirror the federal tax advantages for 529 plans by offering state tax-deferred growth and tax-free withdrawals for qualified higher education expenses.

"Each state that offers a 529 plan determines how its plan is structured and which investment options are offered. While most plans allow investors from out of state, there can be significant state tax advantages and other benefits, such as a state tax deduction, a matching grant, and scholarship opportunities, protection from creditors and exemption from state financial aid calculations, for investors who invest in 529 plans offered by their state of residence.

There are two types of 529 plans: prepaid and savings. Prepaid plans (sometimes called guaranteed savings plans) are offered in 18 states and allow for the pre-purchase of tuition based on today's rates and then paid out at the future cost when the beneficiary is in college. Performance is often based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions.

Savings plans are different in that your account earnings are based upon the market performance of the underlying investments, which typically consist of mutual funds. Savings plans may only be administered by states. 48 states and Washington, D.C. offer a savings plan.

Most 529 savings plans offer a variety of age-based investment options where the underlying investments become more conservative as the beneficiary gets closer to college-age.

They also offer risk-based investment options where the underlying investments remain in the same fund or combination of funds regardless of the age of the beneficiary. In addition, many savings plans offer a stable value or guaranteed option designed to protect an investor's principal while providing for some investment growth, while others offer investments in certificates of deposit.

With the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), 529 plans gained their current popularity and tax advantages.

Prior to EGTRAA, 529 plans grew tax-deferred and distributions from 529 plans for qualified higher education expenses were taxed at the beneficiary's federal income tax rate.

After EGTRAA, 529 plans still grow tax-deferred but distributions from 529 plans for qualified higher education expenses are exempt from federal income tax. The 529 plan provisions of EGTRAA, originally set to expire after 2010 due to a sunset provision, were made permanent by the Pension Protection Act of 2006.

This permanency means you can save in a 529 plan knowing that your withdrawals for qualified education expenses will remain free from federal income tax! Many states mirror the federal tax advantages for 529 plans by offering state tax-deferred growth and tax-free withdrawals for qualified higher education expenses."

See Q and A, additional resources at College Savings Plan Network


Search GOOGLE for 529 College Savings Plan information in your state

College Savings Calculator: How much will you need?

College Savings Plans, 529, Coverdell

529 College Savings Plan information from the College Board


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Graduate Early, save money

Special Information for Learning Disabled College Bound

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