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Understanding 529 College Savings Plans

Posted by Admin Posted on May 29 2019 parents today suffer from sticker shock when they learn what it costs to send their children to college. While the cost of college can be a hard pill to swallow for parents of college-bound teens, now is the time for parents to get familiar with a 529 College Savings Plan. The commonly used college savings plan has offered parents, and their college-bound kid(s), tax-free withdrawals to pay for college.

Here’s what you need to know about a 529 College Savings Plan:

- Also known as a “qualified tuition program,” a 529 Plan allows an individual to save for higher education expenses for a determined beneficiary.

- Anyone—whether they are a family member or friend—can establish a 529 Plan for a designated beneficiary.

- A 529 Plan is provided by a state, an agency of the state or by an educational institution itself.

- Money invested in the plan accumulates on a tax-deferred basis and distributions used for higher education expenses are tax and penalty-free, as long as the funds are used for approved education expenses. 

If you are considering establishing a trust for your child to pay for college instead, here’s what you should know:

- Most trust funds may not be effective means of sheltering this cash from the financial aid process—if your child will be applying for aid trust funds can be counted in the financial aid process as an asset of the child. This could affect your child’s eligibility for aid.

- A potential work around to the above issue could be established if the trust was restricted to withdrawing just the principle for the beneficiary.

Be sure to work with a financial professional before investing in a 529 Plan to understand eligibility requirements. Some plans will only allow savings to be used to pay for college in that designated state, for example.

If you are interested in starting a 529 College Savings Plan for your children, give us a call today at 417.883.1212 to discuss savings and investment strategies.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing.

Investors should also consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from the state's 529 Plan. Any state-based benefit should consult their financial or tax advisor before investing in any state's 529 Plan.