Why should I consider opening a 529 plan?
April 29, 2019
It has been said that buying a home will be the most expensive purchase in most people’s lifetime.
Unfortunately, college expenses are rapidly approaching and, in some states, exceeding the cost of a home purchase. It can be incredibly stressful and alarming when paying for a child’s education. Fortunately, 529 savings plans have significant benefits to assist in paying for this important expenditure.
529 plans are state sponsored savings vehicles created specifically for paying qualified education-related expenses in a tax efficient manner. Qualified expenses range from tuition and fees, books, and supplies with even more generous college level expenses that include computers, internet, room and board, and special needs equipment. Kindergarten through 12th grade expenses are limited to $10,000 per year while qualified college expenses are unlimited (until you fully spend the 529 account balance).
There are special tax benefits afforded to 529 plans under the current U.S. tax code. This is the reason these savings vehicles should be considered in just about any educational expense plan. All earnings in a 529 plan account grow federally and state tax-deferred, and when used on qualified educational expenses, completely tax-free meaning the growth is not taxed at distribution. Some states may even offer a tax deduction when making 529 plan contributions. There are no income restrictions to open or fund 529 plans.
Capital contributed to a 529 plan is invested in a similar fashion to most employer-sponsored 401(k), 403(b), and 457 plans. 529 plans typically include age-based strategy options that automatically adjust the investment allocation as a child nears college age (and are conceptually similar to retirement date funds). Plans also include custom strategies giving you the flexibility to select from a predetermined set of investment options. When advising our clients, Polaris Greystone Financial Group (PGFG) Wealth Advisers will typically choose the custom strategy route and develop a custom investment plan that coordinates with your retirement plan and educational funding goals.
If you need assistance with your educational expense planning, or simply want to review your current 529 plan(s), your PGFG Wealth Advisor is ready to assist you. We will make sure your college expenses sync appropriately with your comprehensive financial plan, ensuring this important decision is properly planned and saved for. Choosing a college to attend is hard enough. The additional burden of financing college expenses should be prepared well in advance of selecting the school for your child to attend, reducing the stress of this otherwise celebrated and important journey.
Jeremy Witbeck, CFA®, CFP®, Partner
Polaris Greystone Financial Group, LLC is a federally registered investment adviser. The information, statements and opinions expressed in this material are provided for general information only, are based on data we believe to be accurate at the time of writing, and are subject to change without notice. This material does not take into account your particular investment objectives, financial situation or needs, is not intended as a recommendation to purchase or sell any security, and is not intended as individual or specific advice. Investing involves risk and possible loss of principal capital. Diversification does not ensure a profit or protect against a loss. Past performance is not indicative of future returns. Advisory services are only offered to clients or prospective clients where Polaris Greystone Financial Group, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Polaris Greystone Financial Group, LLC unless a client service agreement is in place.