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FINANCIAL FOCUS
a 529 Plan can HelP witH tHoSe college BillS
W
e’re At the eNd OF ANOther
school year. if you have younger kids,
you might be thinking about summer
camps and other activities. But in the
not-too-distant future, your children
will be facing a bigger transition as
they head off to college. will you be
financially prepared for that day?
a college education is a good investment – college
graduates earn, on average, $1 million more over their
lifetimes than high school graduates, according to a
study by georgetown University – but a bachelor’s
degree doesn’t come
cheap. For the 2015-
2016 school year, the
average expense –
tuition, fees, room and
board – was $19,548
at a public four-year
school and $43,921
at a four-year private
school, according to the
college Board. and by
the time your children
are ready for college,
these costs may be
considerably higher,
because inflation is alive
and well in the higher
education arena.
Your children may be
eligible for some types
of financial aid and scholarships. But even so, you may
want to consider some college-savings vehicles – and
one of the most popular is a 529 plan.
A 529 plan offers a variety of benefits,
including the following:
• High contribution limits
– a 529 plan won’t
limit your contributions based on your income. in all
likelihood, you can contribute as much as you want
to a 529 plan, as many states have contribution limits
of $300,000 and up. and you can give up to $14,000
($28,000 for a married couple filing jointly) per year, per
child, without incurring any gift taxes.
• Tax advantages
– Your earnings can accumulate
tax free, provided they are used for qualified higher
education expenses. (529 plan distributions not used
for qualified expenses may be subject to federal and
state income tax and a 10% irS penalty on the earnings.)
Furthermore, your 529 plan contributions may be eligible
for a state tax deduction or credit if you participate in
your own state’s plan. But 529 plans vary, so check with
your tax advisor regarding deductibility.
• Freedom to invest in any state’s plan.
– You can
invest in a 529 plan from any state – but that doesn’t
mean your child has to go to school there. You could live
in one state, invest in a second state’s plan, and send your
student to school in a third state, if you choose.
• Money can be
used for virtually
any program
– Upon
graduating high
school, not all kids
are interested in,
or prepared for, a
traditional four-year
college. But you can
use your 529 plan to
help pay for qualified
expenses at a variety of
educational institutions,
including two-year
community colleges
and trade schools.
of course, a 529
plan does have
considerations you will
need to think about
before opening an account. For example, your 529 plan
assets can affect your child’s needs-based financial aid,
but it might not doom it. as long as the 529 assets are
under your control, they typically will be assessed at a
maximum rate of 5.64% in determining your family’s
expected contribution under the federal financial aid
formula, as opposed to the usual 20% rate for assets held
in the student’s name.
in any case, though, a 529 plan is worth considering.
But don’t wait too long – as you well know, your kids
seem to grow up in the blink of an eye.
This article was written by Edward Jones for use by your
local Edward Jones Financial Advisor.