Estes Wealth Strategies
Compass cropped transparency soft.png

Compass Points

Financial Insights for Navigating

Your Life of Possibilities


College Savings: Get to Know 529s

College tuition is a big bill to plan for, and even the best savings strategy may leave you struggling to keep pace with the rising cost of higher education.

A 529 plan, however, is a different kind of savings plan—one that can not only grow with your child, but can help reduce your tax liability and benefit your overall estate as well. Here's a quick 529 primer that provides an overview of this savings vehicle and its benefits ...

  • 529s are tax-advantaged, diversified investments that have the potential to grow faster than traditional savings. Over the last decade, college tuition increased by an average of 5% annually. That's substantially higher than the general inflation rate, the average increase in personal income, and the average interest on a traditional savings account.
  • 529s are offered by individual states, but you do not have to be a resident of a given state to participate, nor are schools limited to that state. 529s are extremely flexible. For example, you can live in Maryland, invest in Virginia's 529 plan, and use the funds to attend the University of Washington.
  • 529 funds can be used to pay tuition expenses at any eligible educational institution. Eligibility is defined as any private or public college, university, or technical or vocational school that qualifies for federal financial aid (Note: this includes some international schools). You can use this lookup tool to find qualifying institutions.
  • 529 funds can also be used to cover tuition, books, room and boardand now computers. Withdrawals are tax-free if used for qualified expenses at eligible schools.
  • 529s can be opened with as little as $25. There are no income limits on establishing or contributing to a 529. Anyone can invest.
  • There may be tax and other considerations when evaluating a state's 529 plan. Before investing in a given state's 529 plan, you should consider that plan's performance and ratings. You should also find out whether your resident state offers state tax or other benefits only available when investing in your state's 529 plan. Plans offered by other states may not provide these same tax benefits.
  • Your estate can benefit through a unique 529 plan gift provision. With "accelerated gifting," you can contribute up to five years' worth of gifts ($140,000 for a married couple) at one time per child beneficiary and significantly lower your estate's tax liability. This can be a useful gifting tool for grandparents.
  • Assets in a 529 remain in control of the person who owns the account, not the beneficiary. You can change beneficiaries at any time, and all unused assets can be withdrawn, though earnings may be subject to taxes and a 10% penalty.
  • Owning a 529 may not limit financial aid opportunities as much as you think. Since the assets belong to the account owner and not the beneficiary, they are assessed at a smaller rate when determining aid.

College planning can be a challenging task. That's why I'm here to help develop a strategy that is right for you and your family.
If you are currently contributing to a 529 college savings plan for a child in your life, congratulations! You are already making an important investment for the future. Together we can monitor your investment—and look forward to the day when it can be used to help your child achieve his or her educational goals.
If you have not yet begun saving for college—for a child, grandchild or other special child in your life—and would like to learn more about the potential benefits of a 529 plan, please do not hesitate to contact me for a consultation.

* * * * * * *

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc. Estes Wealth Strategies is not a registered broker/dealer and is independent of Raymond James Financial Services.

Any opinions in this newsletter are those of Estes Wealth Strategies and John Estes and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice.

Earnings in 529 plans are not subject to federal tax, and in most cases, state tax, so long as you use withdrawals for eligible college expenses, such as tuition and room and board. However, if you withdraw money from a 529 plan and do not use it on an eligible college expense, you generally will be subject to income tax and an additional 10% federal tax penalty on earnings. You should consult a tax advisor regarding any state tax consequences before investing in a 529 plan. Diversification does not guarantee a profit nor protect against loss. Investments are subject to risk including the possible loss of capital. Certain conditions may apply.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members.
The information provided does not purport to be a comprehensive description of securities, markets, or other developments. This information has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information provided is not a complete summary or statement of all available data necessary for making an investment decision, nor does it constitute a recommendation.