College Savings, 529 Plans and Inflation
While the summer months are generally regarded as a time to relax and have fun, recent school graduate and their families are also thinking about their financial future.
The pandemic has abated, but the financial effects are still in play. Many experts believe we are in a recession or going to be very soon. According to the Bureau of Labor Statistics, from March 2021 to March 2022 the inflation rate rose 8.5 percent. In contrast, college tuition and fees have stayed fairly static since just before the global pandemic.
The worry about an economic downturn and a major recession has caused many Americans to question whether they are doing the right thing with their investments. Financial uncertainty and stress can make you start thinking rashly.
The possible recession is especially unsettling to parents whose 529 college savings plan accounts are declining due to inflation. Some may be thinking about pulling out of their 529 accounts. Be warned that by pulling out of a 529 plan you could be causing irreparable damage.
“Panic is never a solution,” advises Max Tulupnikoff, Senior Vice President, Investments for David Lerner Associates says, “You need to think long-term. Prepare properly for the market’s recovery and your college funding should get back on track over time. Making big changes in your investment strategy could be detrimental down the line.”
If you do choose to siphon money out of your 529 plan you could lose significant tax benefits. Make sure you get all the information you need because the IRS has rules about taking a distribution from a 529 plan. Remember, the 529 plan is specifically designed for education. In most cases, pulling any cash out of the account for anything at all other than education expenses, means you are liable for a 10 percent penalty on any earnings, as well as any income taxes that go along with it!
Making smart financial decisions in a tough market isn’t easy. Getting good advice that will help you through these dark times helps minimize the risk associated with any changes you may make to your investment portfolio. Making hasty decisions is never a clever move if you are dealing with money.
IMPORTANT DISCLOSURES
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. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
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David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC