I recently came across a fact sheet produced by Franklin Templeton which laid out the benefits a 529 account can provide to a child's future educational needs. Given the rising cost of education these days, having a strategy in place is becoming increasingly more important for new parents and grandparents.
1| PAY FOR MORE THAN JUST TUITION
Savings can be used for any qualified tuition expenses. Additionally, savings can be used at accredited colleges and certain vocational schools for qualified expenses which can include mandatory fees, supplies, books or other required equipment, and room and board, if the beneficiary is enrolled at least half-time. Savings can also be used for certain certified apprenticeship expenses.
2| ABILITY TO CHANGE BENEFICIARIES
The beneficiary can be changed to a member of the immediate or extended family (including siblings, grandchildren, nieces, nephews, cousins and more).
3| CONTROL OF ASSETS
The account owner—not the beneficiary—maintains control of the assets, including how and when they will be used.
4| CONTRIBUTION FLEXIBILITY
Many 529 plans allow account owners to contribute as little as $25 to an account. Most plans allow account owners to contribute $300,000 (or more) per beneficiary over the lifetime of the account.
5| WIDE RANGE OF SCHOOLS
529 savings can be used at most accredited two- and four-year colleges and universities and vocational schools, including many outside the U.S., as well as certified apprenticeships. Up to $10,000 per year per beneficiary can be used for tuition for eligible public, private and religious primary and secondary educational institutions (K-12). What expenses will be regarded as “tuition” in the case of public schools may vary by state.
6| NO INCOME RESTRICTIONS
Anyone can open a plan regardless of their income.
7| MULTIPLE INVESTMENT OPTIONS
Most 529 plans offer a wide range of investment choices allowing you to invest your assets in the portfolio that best suits your college investing goals.
Many 529 plans offer features that make them a convenient way to save for college, including monthly automatic investment plans and portfolios that automatically rebalance as the beneficiary gets closer to college.
9| EARNINGS GROW TAX FREE
Earnings grow federal income tax-free, and earnings are free from federal income tax when withdrawn for qualified higher education expenses, used up to $10,000 per year for tuition for eligible primary and secondary schools, or up to$10,000 may be paid toward principal or interest of a student loan for the beneficiary or a sibling.
10| ESTATE PLANNING
Five years’ worth of gifts (up to $75,000 for an individual or $150,000 if a married couple) can be made at once to a 529 plan without owing federal gift tax, as long as no other gifts are made to the same beneficiary over the following five years.
If like to have a discussion about opening a 529 account for your children or grandchildren, click here.