Broker Check

College Funding Part 2

October 05, 2020
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529 Plans

Here are a few things of interest about 529 plans.  They are investments that have tax free compounding.  Qualified withdrawals include costs for vocational and trade schools, college, graduate school, and even K-12 tuition up to $12,000 per student.  Qualified withdrawals are tax free.  On non-qualified withdrawals, only the earnings are subject to tax and penalty.  And withdrawals are pro-rata.  There are no age or income limits for the owner.  Substantial amounts can be contributed at one time.  Ownership can be transferred tax free any time.  Beneficiaries can be changed.  The student does not need to know about the account when it is opened.  You could fund the account for a particular child or grandchild and decide to change it later.  There are no required distributions based on age so it can be a long-term investment.  There are numerous other details.  Call us with your questions if this is something of interest.

 

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.