Saving for college is easier than ever
As a parent or grandparent, you want to do all you can to help your family grow and flourish. And a big part of that is saving for future higher education expenses. However, saving for that education can be a daunting challenge. As a result, many investors take advantage of a §529 plan, a flexible college savings strategy that allows them to invest money on a tax-deferred basis, helping meet the expenses associated with higher education. The plans are named after Section 529 of the Internal Revenue Code and are administered by state agencies and organizations, therefore many different plans are available. Withdrawals from college savings plans can generally be used at any college or university. As long as the withdrawals are for eligible college expenses, you will not be subject to federal tax, and in most cases, state tax on the earnings.
Qualified Higher Education Expenses include:
- Mandatory fees
- Room and board
- Books, supplies and equipment necessary for enrollment
Benefits of a §529 COLLEGE SAVINGS Plan:
Convenience and Flexibility
- Can be opened and funded at any time, by anyone (parents, grandparents, friends, etc).
- Start the account with an initial lump-sum contribution, (modest or significant) and contributors can make regular or occasional contributions.
Tax-deferred treatment of earnings and Tax-free Distributions1
- Earnings are tax-deferred, meaning you will not be taxed on the earnings until withdrawal. This way, taxes will not erode your account, allowing more of your funds to work for you over time.
- Withdrawals made for qualified higher education expenses are federal income tax-free!
- Choose from a selection of professionally managed portfolios offered by a variety of prominent mutual fund companies.
Control of Assets
- The account owner retains control of the assets and determines how the investment is used.
- If the beneficiary chooses to forego college, the account owner may change beneficiaries2 or withdraw the assets.1
No Income Limits or Restrictions
- Anyone at any income level can establish or contribute to a §529 account.
Generally Low Minimum Investments / Varying Contribution Limits
- Although the rules vary from state to state, contribution minimums are generally low.
- The maximum amount allowed over the life of the account can be quite sizeable–more than $150,000 per student under most plans.
Special Gift And Estate Tax Treatment3
- Account owners can deposit up to five years of contributions4 in a single year for each beneficiary without gift tax consequences.
- Contributions are generally excluded from your taxable estate for federal estate tax purposes, provided you are not the beneficiary on the account.
Types of §529 plans
§529 plans are usually categorized as either prepaid or savings plans.
- Prepaid Plans let you pre-pay all or part of the costs of an in-state public college tuition based on today’s rates and then paid out at the future cost when the beneficiary reaches college. They may also be converted for use at private and out-of-state colleges.
- Savings Plans invest your contributions in mutual funds or similar investments. Your account will go up or down in value based on the market performance of the underlying investments, much like a §401k or IRA. Plans offer you several investment options from which to choose.
It's never too early to start a college savings program. Your Legend Group Financial Professional can help you select which plan would be a good fit for you so you can begin taking advantage of college saving opportunities. They can guide you in developing a comprehensive investment strategy designed to achieve your financial goals and make your money work for your student.
1Federal income tax on the earnings and a 10% penalty on the earnings may apply if withdrawals from
§529 plan are not used for qualified educational expenses.
2 The new beneficiary must be a member of the original beneficiary’s family. There may be federal gift or generation skipping transfer tax consequences if the new beneficiary is a member of a younger generation than the original beneficiary
3 Lincoln Investment does not render tax or legal advice. Consult your tax adviser or attorney for tax and legal advice specific to your situation.
4 Account owners may opt to contribute five times the current gift tax exemption amount in one year; the gift is treated as a series of five equal annual gifts on the federal gift tax return after the gift is made. If additional gifts are made, they may be subject to federal gift taxes. Subject to an “add-back” rule in the event of the contributor’s death.
Section 529 plans offered: Are Not FDIC Insured; May Lose Value; Are Not Bank Guaranteed. Favorable state tax treatment may be limited to investments made in a §529 college savings plan offered by the customer’s home state. Customers should consult their tax adviser before investing.
Lincoln Investment. and its affiliates do not provide tax, estate planning or legal information or advice.
Before investing in a §529 plan, consider its investment objectives, risks, charges and expenses carefully. The official statement, which contains this and other information about the §529 plan, can be obtained by contacting Lincoln Investment. Please read the official statement carefully before you invest or send money.