Monday, July 26, 2021


What’s your plan? (03/20/2019)

The 529’s are interesting!  You should spend some time on your own and then with those in the know getting educated on College Savings Plans.  529 plans are designed to encourage saving for future education costs with a tax-advantaged savings vehicle.  Legally, they are known as “qualified tuition plans” and are authorized by Section 529 of the Internal Revenue Code.  “Prepaid tuition plans” and “education savings plans” are the two types that you will run into.  “Prepaid plans” let the saver (account holder) purchase future tuition for a student (beneficiary).  They will not cover room and board at the institution, nor will you be allowed to pay elementary and secondary school costs with this money.  These funds are not guaranteed and therefore are at risk of being lost if the company you are working with has difficulty being solvent (goes bankrupt).  Another area of concern is that your student may not want to attend the participating university; in this case it may only cover a small part of the costs associated with the school of their choice.

“Education Savings Plans” are a bit more useful.  They are an investment account and will pay for qualified higher education expenses for the beneficiary:  tuition, fees, room, and board.  They can generally be used at any college and can also be used to pay for elementary or secondary schools up to certain limits per year.  Remember that these are investments and that investments come with risk.  Your broker will always bill you for your business and with this plan being tied to the market you could wake up one morning and have the account with a $0 balance.

You may want to (most likely should) get the advice of a tax specialist.  The object with 529’s is to have the tax advantage of not having to get taxed on the money you put into it.  If the funds are withdrawn for unqualified use, they will be taxed, and an additional 10% federal tax penalty will be applied to earnings.  See and search 529 for more information on these savings plans.

Is a 529 college savings plan a good idea?  That depends!  There are so many aspects to be looking at and everyone is unique to the individual.  My challenge to you is to be actively engaged in college planning if there is someone in your life that will be attending in the future.  If you aren’t, you will pay too much.  Just getting by on loans is a mistake that will put you in massive debt.  I appreciate that you read the column.  Thank you!  I will answer any of your college planning questions and all comments directed or at■

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