529 Savings plans were introduced in 1996 as a convenient way to save for future college education expenses. They are used widely, but misunderstandings about their design and use also exist widely.
The primary benefit of 529 plans are that they provide tax free growth of contributions as long as the funds are used for qualified college expenses. More recently, laws changed allowing for 529 plans to be used for k-12 education as well, with the limit annually per student being $10,000 for grades prior to college. Setting up a 529 plan can be especially valuable if funds are deposited early and have time to benefit from tax-free growth. Some states also allow for a reduction in state income tax during the year the funds are contributed.
Potential asset growth within a 529 plan comes from a set list of mutual fund investments inside the plan. The fact that the assets are permanently segregated from your spendable assets allows for the growth to occur without the funds being used for other household needs.
One of the most important aspects of a 529 plan is parental control and beneficiary flexibility. Parents control the assets as the “owner” of the 529 and they are transferable to other siblings or relatives should the original beneficiary not use the funds. They do not become the child’s assets at the age of majority.
DHG Wealth Advisors provides access to many nationally respected 529 plans. We’d be happy review your needs along with the funding vehicles specific to your state.
We’ve attached an article from the AICPA that goes into more detail on these valuable college savings vehicles. Please keep an eye out for our podcast on the topic in a future DHG Insights piece.