529 plans are state-specific savings plans that help investors save for college. All the money in the account is tax-deferred and as long as the money is used to pay for qualified education expenses the investment earnings may be withdrawn tax-free. This preferential tax treatment has made 529 plans a popular option for college savings.
Advantages of 529 College Savings Plans:
Tax free growth - As noted above, investment earnings are never taxed if the money is used for the direct costs of higher education. Expenses can include tuition, books, on-campus housing, etc.
State tax deduction - A number of states offer a state tax deduction on contributions to 529 plans. In South Carolina, you can deduct any amount up to your total income from your state taxes. The rules for these tax deductions vary by state.
Use any state plan - While you may buy your own state’s plan, you are free to use the plan of another state. You may do this to access a preferred investment manager. Note - each state has different options available.
“Prefund” and save - While an individual is normally allowed to gift $14,000 as an annual exclusion, 529 plans allow you to use five year’s gifting at once. Theoretically, a couple can give $140, 000 ($14,000 X 2 people X 5 years) at one time to a child or grandchild’s 529 plan.
Shelter against a storm - Once inside a 529, the money is generally protected against bankruptcy and creditors.
Retain control - Unlike a Uniform Gift to a Minor’s Account (UGMA), you maintain control of a 529 gift. You control when distributions are made, not the minor, and you may choose to take it back or transfer it to another family member.
Use it as a legacy tool - If your children fail to use all the 529 assets, the plans can be reassigned to the next generation. Reassigning is a simple process and can be repeated to future generations.
It’s not too late - Even if you have a child in school now, you can make a deposit to a 529 plan and quickly send the money out to pay for higher education expenses. If you fail to qualify for other educational federal tax benefits, at least you can earn a quick benefit on your state taxes.
Investors should consider their investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.
and investment advisory services offered through Cetera Advisor
Networks, LLC, Member FINRA/SIPC - Founders Federal Credit Union,
Founders Financial Group, LLC and Founders Insurance Services are not
affiliated with Cetera. Investment Services is a department of Founders
Federal Credit Union. Registered Sales Branches are located at 607 N.
Main Street, Lancaster, SC 29720; 1290 Old Springdale Road, Rock Hill,
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This article was written by C. David Tolson, III with Founders Investment Services. It was published in Founders Open Exchange Newsletter (July 2013).