You're in control. Low maintenance. Flexible. Tax breaks.
Section 529 college savings plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. Much like the way 401(k) plans revolutionized the world of retirement savings a few decades ago, 529 college savings plans have revolutionized the world of college savings. As of June 2013, assets in 529 college savings plans totaled $205.7 billion (Source: College Board's 2013 Trends in Student Aid Report).
529 college savings plans offer a unique combination of features that no other college savings vehicle can match:<?p>
Although 529 college savings plans are a creature of federal law, their implementation is left to the states. Currently, there are over 50 different college savings plans available because many states offer more than one plan.
You can join any state's 529 college savings plan, but this variety may create confusion when it comes time to select a plan. To make the process easier, it helps to consider a few key features:
With so many plans available, it may be helpful to consult an experienced financial professional who can help you select a plan and pick your plan investments, giving you peace of mind. In fact, some 529 college savings plans are advisor-sold only, meaning that you're required to go through a designated financial advisor to open an account. Always carefully read the 529 plan issuer's official materials before investing.
Once you've selected a plan, opening an account is easy. You'll need to fill out an application, where you'll name a beneficiary and select one or more of the plan's investment portfolios to which your contributions will be allocated. Also, you'll typically be required to make an initial minimum contribution, which must be made in cash or a cash equivalent.
Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions. You'll also be able to change the beneficiary of your account to a qualified family member (e.g., siblings, stepsiblings, parents, nieces, nephews, aunts, uncles, first cousins) with no income tax or penalty implications. Most plans will also allow you to change your investment portfolios (either for your future or current contributions) if you're unhappy with their investment performance.
There are actually two types of 529 plans--college savings plans and prepaid tuition plans. As of June 2013, assets in 529 prepaid tuition plans totaled $22.6 billion (Source: College Board's 2013 Trends in Student Aid Report). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today's prices for use by the beneficiary in the future. The following chart describes the main differences:
Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
College Savings Plans