529 College Savings Plans
529 college savings plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. Much like the way 401(k) plans revolutionized the world of retirement savings a few decades ago, 529 college savings plans are revolutionizing the world of college savings.
Tax Advantages and More:
529 College savings plans offer a unique combination of features that no other college savings vehicle can match:
- Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.)
- State tax advantages: Many states offer income tax incentives for state residents, such as tax deduction for contributions or a tax exemption for qualified withdrawals.
- High contribution limits: College savings plans allow you to contribute as much as $300,000 over the life of the plan.
- Unlimited participation: Anyone can open a 529 college savings plan account, regardless of income level.
- Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.
- Flexibility: Under federal rules you are entitled to change the beneficiary of your account to a qualified family member at any time as well as rollover the money in your 529 plan to a different 529 plan once per year without income tax or penalty implications.
- Wide use of funds: Money in a 529 college savings plan can be used at any college in the United States or abroad that is accredited by the Department of Education and, depending on the individual plan, for graduate school.
Although 529 college savings plans are a creature of federal law, their implementation is left to the states. Currently there are over 50 different college savings plans available because many states offer more than one plan. You can join any state’s 529 plan, but this variety may create confusion when it comes time to select a plan.
Pacific Financial Designs has developed programs that help you through the selection process. We take all of the variables into consideration like: your state of residence, state tax laws, plan fees, and investment performance to find a plan that will accomplish your goals. Contact us today for more information on investing in 529 College savings plans.