Investment advice on 529 plans in time for National College Savings Day


I am at the age when many of my old friends from college now have kids who go to college on their own. If you can tell me where all the time is, I would appreciate it.

Recently, one of the sons of one of these friends surprised me by announcing his plans indoors in a “college reveal video” sent to friends and family. In the video, this intelligent, engaging, and compassionate young man revealed he was heading to a major university in the Pacific Northwest to study environmental sustainability – and I couldn’t be happier for him and his parents.

But even though their son receives scholarships and financial aid, I am well aware that significant costs can still arise in higher education. So, being a bit of a curious person – and because we’ve been friends for over 25 years – I asked my friend if he had opened a 529 college savings account for his son.

“Absolutely! We did,” he replied. In fact, he and his wife opened the 529 account right after their son was born – a smart move that prompted me to dedicate a column to 529 shots, using this family’s real success advice.

Just to make sure we’re all up to date and on the same page: a 529 plan is an education savings account that can be created for anyone by anyone, but it’s the most often created by parents and grandparents interested in financing the education of their children or grandchildren. The number 529 comes from a part of the tax code where this provision resides. And, in case it’s not on your calendar yet, May 29 is National College Savings Day. (Get it? Fifth month, 29th day. Smart.)

Income in 529 plans is not subject to federal tax and, in most cases, state tax, as long as withdrawals are used for qualifying education expenses such as tuition. , room and board, books and a computer. Although these plans are often set up for another person, the account holder retains full control over the assets and the disbursement of funds.

There is no age limit for beneficiaries or contributors, and no income limit for contributors. And, unlike some other college savings plans, 529 plans allow contributors to invest from any state – regardless of whether the beneficiary lives or plans to attend school in that state.

Additionally, since 2017, federal legislation has expanded 529 qualifying expenses to include up to $ 10,000 per year for K-12 tuition as well as costs associated with registered and credited learning programs. These plans now also offer a lifetime maximum of $ 10,000 to repay eligible student loans to a beneficiary or siblings.

I’ll say it: 529 plans are great education savings vehicles. But don’t take it for me. Take it from my friend whose son is going to college this fall. He said he still advocates 529 plans for new parents because those plans could help families skyrocket the costs of college education.

He then shared the following tips, endorsed and developed by your sympathetic neighborhood financial advisor, which he attributes to the success of his son’s plan:

· Don’t just save, invest. While 529 plans offer short-term cash savings in money market instruments, consider making investments with higher growth potential. College target date portfolios, like my friend’s family chose for their son, are more focused on growing early when the child is young. Then, as the child approaches their scheduled enrollment year, the accounts become more preservation-oriented to minimize market volatility. He saw this as a ‘set it and forget it’ strategy that might work well over time. Keep in mind that the regulations do not allow more than two changes in investment strategy per year.

· Start early. The sooner you start investing, the more time you have to grow your fund through the power of long-term funding. My friend opened a 529 account right after her son was born – and about 18 years later his balance is healthy thanks to the membership.

· Set up automatic monthly contributions. The regular monthly contributions over time have been the main factor in the success of his plan for my friend.

· Let family and friends contribute. Instead of expensive toys that his son would soon miss out on, my friend encouraged his child’s grandparents to contribute to the 529 plan for birthdays and holidays.

· Set an objective. Originally, his goal was to cover at least two full years of planned university costs for 2021-2025 – and he’s happy to report that the plan is set to meet or exceed that goal.

· Take advantage of your state’s income tax deduction, if it has one. Some states offer a tax deduction to contribute to any 529 plan, including out-of-state plans, while other states offer potential tax breaks on contributions made only to in-state plans. In Maryland, my friend was able to take advantage of that, deducting up to $ 2,500 per year, per beneficiary, from state taxable income. As of 2014, however, residents of North Carolina no longer receive a state tax deduction for contributions made to a 529 plan.

Of course, there are other ways to save for college, from Roth IRAs to UTMAs and Coverdell Education Savings Accounts. But, in my opinion, the 529 University Savings Account is the best choice – and I know a proud dad with a successful kid who would support me. “Everything worked as we expected,” he said.

Bray creech

Bray Creech, MBA, CPA is a Professional CERTIFIED FINANCIAL PLANNER ™ with Joel Adams & Associates with titles offered by Raymond James Financial Services, Inc. FINRA / SIPC Member and is located at 545 Merrimon Avenue, Asheville, NC. He can be contacted at 828-251-9700 or [email protected] CPA services are not offered by Raymond James. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Joel Adams & Associates is not a registered dealer and is independent of Raymond James Financial Services, Inc.

The opinions expressed in the article are those of the author and are not necessarily those of Raymond James. The information contained in this report does not claim to be a complete description of the securities, markets or developments referred to in this document. The information was obtained from sources believed to be reliable, but we do not guarantee that the above information is accurate or complete. Past performance may not be indicative of future results. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

There are risks involved in investing and you can suffer a profit or a loss regardless of the strategy you choose. The investments mentioned may not be suitable for all investors. The examples used are provided for illustrative purposes only. Therefore, future performance cannot be guaranteed and investment returns will fluctuate depending on market conditions.

Investors should consider, before investing, whether the home state of the investor or designated beneficiary offers any tax or other advantages that are only available for investment in the 529 savings plan of that state. State. These benefits include financial aid, scholarships, and creditor protection.

As with other investments, there are usually fees and expenses associated with participating in a 529 plan. There is also a risk that these plans will lose money or not perform well enough to cover education costs like. planned. Most states offer their own 529 programs, which can provide benefits and perks exclusively to their residents. The tax implications can vary widely from state to state.

Favorable state tax treatment for investing in Section 529 college savings plans may be limited to investments made in plans offered by your home state. Investors should consult a tax advisor about the state tax consequences of an investment in a 529 plan.


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