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  • Writer's pictureMatt Oberholzer

National College Savings Plan Day

May 29th or 5/29 is known as National College Savings Plan Day because the most commonly used savings tool to prepare for the high expenses of education are 529 Savings Plans.

Advantages of a 529 Plan are:

1.      Funds can be invested to grow

2.      If funds are used for qualified educational expenses, you get tax-free withdrawals on earnings

3.      Anyone can contribute

4.      Most states allow a tax deduction if you invest in state-sponsored plans

5.      You can change the beneficiary of the savings vehicle

The downsides of a 529 are:

1.      Taxes if withdrawn for ineligible expenses

2.      Penalties if withdrawn for ineligible expenses

Other education savings vehicles include:

1.      Coverdell Education Savings Accounts (CESA)

2.      Custodial Accounts

3.      Traditional Brokerage Accounts

Each of these options comes with its own perks and drawbacks. For example, custodial and brokerage accounts allow you to use the funds for any reason, but lack the tax advantages of 529’s and ESA’s. While an ESA does provide advantages, this account has income limits that restrict who can contribute and the maximum annual contribution has a much lower limit compared to other savings options.

Another lesser-known advantage of qualified college savings plans are that as a result of Secure Act 2.0, which passed in December 2023, you can roll unused 529 assets into the account beneficiary's Roth IRA without incurring the usual 10% penalty for nonqualified withdrawals or generating any taxable income.

I encourage anyone considering any savings vehicle for education to contact our office to discuss which vehicle is best for you.

The focus is to save as early and consistently as possible. If you’ve read any of the other blogs we’ve posted, you know the power of compounding interest. It is important to prepare as soon as possible for big financial goals like retirement and education.

The cost of attending a public four-year university has increased 10.99% in the last five years, 30.5% in the last 10 years, 67.1% in the last 15 years and 120.6% in the last 20 years. The sooner you can start to save for your goals, the more likely you are to attain them.

Financial aid can be a significant factor when choosing where to go to school. Eligibility in financial aid can change drastically on who (parent, student, other) owns what assets (529 Plan, Custodial Account, etc.). The more money in the students name, the less likely they are to receive additional aid. As a general rule of thumb, once payments begin, the liquidation strategy should be:

1.      Students assets – custodial accounts, bank accounts etc.

2.      Parental assets – 529 Plans

3.      Grandparent assets – 529 Plans, payments directly to the school

4.      Parental brokerage accounts and cash flow

In planning for the future, whether for education funding or retirement, it is best to save as early and as often as possible. If you have questions about how you can attain your goals, please give us a call.  

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