Are 529 College Savings Plans a Good Idea?
The Benefits of 529 College Savings Plans: A Smart Choice for Future Education
Saving for higher education is a significant financial goal for many families. One popular and effective tool for achieving this goal is the 529 college savings plan. There are 15.81 million 529 accounts in America. Research has found that over half (54 percent) of parents are unaware of 529 plans.
Why are 529 college savings plans a good idea?
Tax Advantages
One of the most significant advantages of 529 plans is their tax benefits.
“Contributions to a 529 plan grow on a tax-deferred basis. That means the earnings are not subject to federal income tax. Even better news – withdrawals made for qualified education expenses, such as tuition, room and board, books, and supplies, are completely tax-free,” explains Gary Isler, Senior Vice President of David Lerner Associates. “These tax advantages can help maximize your savings and boost your college fund.”
Professional Investment Management
529 plans typically offer a range of investment options managed by professionals. These options include age-based portfolios that automatically adjust the asset allocation as the beneficiary approaches college age. By leveraging the expertise of investment managers, families can benefit from diversified portfolios tailored to their risk tolerance and time horizon, potentially increasing the likelihood of achieving their savings goals.
Flexibility and Control
529 plans offer flexibility and control over how the funds are used. The account owner retains ownership of the funds and has the authority to determine how they are allocated among qualified educational expenses. This flexibility allows families to adapt to changing circumstances.
Additionally, if the beneficiary decides not to pursue higher education or receives scholarships, the account owner can change the beneficiary, allowing another eligible family member to use the money. This ensures that the funds are put to good use.
State Tax Benefits
In addition to the federal tax advantages, many states offer their own tax benefits for 529 plan contributions. These benefits can range from deductions on state income taxes to matching grants or scholarships. Researching and understanding the specific tax benefits available in your state is essential to optimize your savings strategy.
Accessibility and Wide Range of Qualified Institutions
529 plans can be used at eligible institutions nationwide, including colleges, universities, trade schools, and even some international institutions. The accessibility and broad range of qualified institutions give families ample choices when selecting the best educational path for their beneficiaries.
Conclusion
529 college savings plans are indeed a good idea for families looking to save for higher education expenses. They serve as an effective tool for achieving educational savings goals.
By starting early, contributing regularly, and taking advantage of the benefits offered by these plans, families can better position themselves to afford the rising costs of higher education while securing a brighter future for their loved ones.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.