How Does a 529 Savings Plan Fit into Your Education Savings Strategy?

Is planning for a child's education a distant dream you hold for your newborn or a rapidly approaching obligation for your high school student? No matter what stage of life your family is in, it is important to take proactive steps to meet this challenge.

Next to retirement planning, paying for your child's education may be the largest expense that your family will incur. May 29th is “529 College Savings Day", so let’s take this opportunity to learn more about 529 Savings Plans. The team at Peabody Wealth Advisors is always available to answer all of your College Planning questions, including the potential benefits of 529 Savings Plans.

There are a few tidbits about this powerful savings and investing tool that you may not know about. Did you know?

• 529 Savings Plan assets can be used to pay for qualified expenses like tuition, books, computers, internet access and other equipment. In addition, 529 assets can also be used to pay for registered apprenticeship programs, accredited trade schools and repayment of college debt.
• Parents may change a 529 Savings Plan beneficiary if the original beneficiary decides not to go to college or has leftover funds in the 529 Savings Plan account after graduation. This can be especially beneficial for those with more than one child.
• Grandchildren, nieces, nephews, or anyone else with future education costs may be also named as a designated 529 Savings Plan beneficiary. There are no tax consequences or penalties when a 529 Savings Plan beneficiary is changed to a member of the beneficiary’s family.
• The earnings in a 529 Savings Plan are generally not taxed (except in some states, under certain circumstances). It is important to know that non-qualified distributions are taxed and subject to a 10% penalty.
• 529 Savings Plans are not just for college. They can be used to pay up to $10,000 per year, per student for K-12 private school tuition.
• 529 Savings Plans can also be powerful estate planning tools. Current tax law allows for advanced one-time gifts of up to $75,000 to fund a 529 college savings account. This equates to 5 years of the standard annual gift exclusion of $15,000 and that amount can be doubled to $150,000 if both parent or grandparents would like to maximize their 5 year gift. The donor can then claim a federal gift tax exclusion for the full amount. Donors employ this tactic to reduce their estate without using any of their lifetime gift exemption. There are some exceptions and we recommend working closely with your estate planning attorney and tax professional when implementing such a gifting strategy.

As you can see, there are a lot of moving parts to 529 Savings Plans. The key to planning for education costs is to know your options, develop a plan and then implement and monitor that plan. If you would like to learn more about College Planning strategies, including how we can assist you in setting up a 529 Savings Plan, CLICK HERE to reach out to the team at Peabody Wealth Advisors for more information or to schedule a complementary consultation.

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.

Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

LPL Financial does not provide tax advice. Clients should consult with their personal tax advisors regarding the tax consequences of investing.