A 529 plan is an affordable, convenient option to help families save for college
A 529 plan is ideal for those who want to save money quickly, and you can enjoy the following benefits from this option:
• Tax-free funds. All money in 529 plans increases federal and state income tax-free. In addition, all withdrawals used for qualified education expenses are exempt from federal income tax, and many states exempt state income tax for specific college and university costs.
• Low contribution limits. Regardless of a family’s income level, many 529 plans feature low contribution limits that make them worthwhile. In some states, minimum limits are as low as $15.
• Money can be used at many schools. A wide variety of accredited colleges and universities around the country will accept 529 plan funds. The money can be used to cover many student essentials, including book, housing and tuition fees.
• Enhanced protection. Many 529 plans are protected against bankruptcy. In fact, some of these plans enable participants to contribute $300,000 or more.
• Easy setup process. Within a short period of time, families can establish 529 plans that will deliver benefits for years.
How to establish a 529 plan
Professional financial advisors help families develop investment strategies to meet students’ needs. These experts will provide details about two types of 529 plans:
With prepaid plans, participants pay for a year (or a portion of a year) of tuition in advance, which locks in the price. These plans are becoming increasingly valuable because many schools raise their costs annually, and those who can lock in tuition expenses can effectively manage their budgets, no matter how much tuition expenses increase by the time a student enrolls.
By using these plans, participants can decide how to invest their funds. Meanwhile, investment plans also enable people to determine how to use that money (and the earnings it generated) for numerous educational costs at a variety of higher education institutions.
Enrollees in 529 plans can make a lump-sum contribution of up to $65,000 per beneficiary or $130,000 if married filing jointly and avoid incurring a gift tax on this amount by electing to use five years of the annual gift tax exclusion all in one year. If they take advantage of this provision, the annual exclusion cannot be used again for the same beneficiary until the five-year period has passed.
Learning about the benefits of 529 plans is the first step to help families save money. Qualified financial professionals offer guidance to ensure that participants get the support they need so these enrollees can attend their dream college or university.
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