Happy 5 29 Day!


For many of us we are adjusting from the last 9 weeks of social distancing. I personally have been working from home and at times feels like Groundhog Day.  However, today is 5.29 day and I thought I would share some ideas on saving for a brighter future.

A 529 plan is a college savings vehicle for parents, grandparents, and anyone else who wants to help pay for a beneficiary’s college education. There are two types of 529 plans:  prepaid tuition plans and education savings plans.  Prepaid tuition plans allow the account owner to pay in advance for tuition at designated colleges and universities, locking in at today’s cost.  Savings plans grow tax-deferred and withdrawals are tax free when used for qualified education expenses

According to savingforcollege.com here are the top 7 benefits of a 529 plan:

  1. 529 plans offer unsurpassed income tax breaks.
  1. Your own state may offer tax breaks as well.
    • In addition to the federal tax savings, over 30 states currently offer a full or partial tax deduction or credit for 529 plan contributions.
    • You can generally claim state tax benefits each year you contribute to your 529 plan, so it’s a smart idea to continue making deposits until you’ve paid your last tuition bill.
    • Be sure to research all of your options. If your state doesn’t offer benefits for residents, you can choose any other state’s plan.
  1. You, the donor, stay in control of the account.
    • With few exceptions, the named beneficiary has no legal rights to the funds in a 529 account, so you can assure the money will be used for its intended purpose.
    • This differs from custodial accounts under UGMA/UTMA, where the child takes control of the assets once he or she reaches legal age.
    • A 529 account owner can withdraw funds at any time for any reason – but keep in mind that the earnings portion of non-qualified withdrawals will incur income tax and an additional 10% penalty tax.
  1. Low maintenance.
    • A 529 plan is a very hands-off way to save for education
    • Most plans allow you to ‘set it and forget it’ with automatic investments that link to your bank account or payroll deduction plans.
    • The ongoing investment management of the account is handled by an outside investment company hired as the program manager or by the state treasurer’s office.
  1. Simplified tax reporting.
    • Contributions to a 529 plan do not have to be reported on your federal tax return.
    • You won’t receive a Form 1099 to report taxable or nontaxable earnings until the year you make withdrawals.
    • In 2020, deposits to a 529 plan up to $15,000 per individual per year ($30,000 for married couples filing jointly) will qualify for the annual gift tax exclusion.
  1. Flexibility.
    • You can change your 529 plan investment options twice per calendar year.
    • You can rollover your funds into another 529 plan one time in a 12-month period.
    • Hint: There is no federal limit on the frequency of these changes if you replace the account beneficiary with another qualifying family member at the same time.
  1. Everyone is eligible to take advantage of a 529 plan.
    • Unlike Roth IRAs and Coverdell Education Savings Accounts, 529 plans have no income limits, age limits, or annual contribution limits.
    • There are lifetime contribution limits, which vary by plan, ranging from $235,000 – $520,000.
    • Those looking to reduce estate taxes can elect to treat a 529 plan contribution of between $15,000 and $75,000 as if it were made over a five calendar-year period to qualify for the annual gift tax exclusion.

There are several strategies to help plan for the next generation. Every child is unique and so is their path to an education and the skills required to be successful. I am a believer that the earlier you start, even if it’s small, the better off you will be.

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