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3 Benefits of 529 College Savings Plans

The average annual tuition at a private four-year college jumped 50% in the past decade and a half, from $22,382 to $33,479, while tuition at public institutions nearly doubled, from $4,885 to $9,648, during the same period.1 Fortunately, there’s a flexible, tax-advantaged way to help defray the skyrocketing costs of higher education: a 529 plan. These plans allow you to invest after-tax dollars, usually in a selection of stock and bond mutual funds. What makes these plans so popular? Let us count the ways…

  1. Tax advantages: No income tax is levied as long as withdrawals are for qualified education-related expenses. In addition, many states and the District of Columbia offer residents a full or partial tax credit or deduction for contributions to their state’s plan. (Some states allow you to deduct contributions to any plan.)
  2. Minimal impact on financial-aid eligibility: Unlike funds in, say, a custodial brokerage account, 529s are considered a parental asset (assuming the account holder is a parent of the beneficiary) and thus have a nominal effect on a student’s financial-aid eligibility.
  3. Flexibility: If you have funds left over or your child’s college plans change, you can name another qualified family member as beneficiary—as long as the money is used for college expenses.

If you decide to open a 529, do your homework, as fees, investment options and performance vary greatly from state to state, and tax advantages in one state may not be available in another.

The bottom line: 529 plans use tax-advantaged savings (and the power of compound interest) to help pay for one of life’s biggest investments.

1“Tuition and Fees and Room and Board Over Time,” The College Board. Tuition for the 2000–2001 school year is in 2016 dollars.

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Important Disclosures

As with any investment, it’s possible to lose money by investing in a 529 plan. Additionally, by investing in a 529 plan outside of your state, you may lose tax benefits offered by your own state’s plan.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.


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