8.20.2023 I Deep Dive on 529 Plans

Your Money Radio

Why consider a 529 savings plan?

○ Tax advantages

• Although contributions are not deductible, earnings in a 529 plan grow federal tax-free
• Qualified withdrawals are free of federal taxes (and 34 states currently offer full or partial tax benefits, too.)
• You can open a 529 no matter how much you make or the age of the beneficiary, which makes them particularly attractive vehicles for grandparents who want to lower the value of their taxable estates.
• 529 plan assets are exempt from federal estate tax.
• If a 529 plan account owner dies, the account will continue under a new successor owner.

○ The Private 529 Plan – “Cousin to 529 plans”

• The Private 529 Plan – called CollegeWell — works differently from traditional 529 plans
• The Private 529/CollegeWell locks in today’s tuition and protects against rising tuition
• Private 529 can help families whose kids are heading for private colleges save thousands of dollars in inflationary costs, and removes market risk from the decision

○ Traditional 529s offer investment flexibility

• Diverse options are available, depending on the plan

○ Full parental control

• Parents (or grandparents), as the account owner, control how the funds are invested and distributed over the life of the account.
• Beneficiaries have no legal rights to the funds in a 529 account (differs from UGMA/UTMA)
• There are no income limits to setting up a 529 plan.

○ Simplified tax reporting

• You don’t have to report 529 contributions on your federal return
• The year you start taking withdrawals, the beneficiary will receive Form 1099 to report investment earnings

○ SECURE 2.0 Act of 2022 added more flexibility to 529 plans

Need more info on college affordability? Contact your financial advisor or visit our website at wealthenhancement.com or go to the CollegeBoard’s website at collegeboard.org