529
Plans
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Tax-deferred benefits now. Tax-free
withdrawals later. One of the most popular investing choices
is a 529 College Savings Plan, featuring:
- “The
real–world advantage of investing tax-sheltered in
a 529 plan beats the theoretical advantage of investing
for low capital-gains taxes”
-
State college saving’s plans. You can pay now- at
tuition’s rate today- for school tomorrow. The money
may be used at any school you choose and for all qualified
higher education expenses. Such as education expenses, including
rooms and board.
-
They offer a menu of age-based portfolios, and some also
offer a small selection of stock and bond funds. In the
early stages the portfolio weight shifts towards the pre-selected
stocks, and as time for colleges nears, the weight shifts
towards bonds.
-
Firms such as Fidelity and TIAA-CREF manage the portfolios.
You will not have to worry about annual taxes on dividends
and gains. The withdrawals are tax-free. If you invest with
your own state’s 529, you may get state-tax deductions
on contributions or exemptions on withdrawals.
-
Investment minimums are low (As low as $25 per month), and
there are no restrictions on how much you contribute every
year unless the account is nearing the lifetime cap.
-
Each state determines its own lifetime contribution limit,
ranging between $100,000 and $270,000. Annual contributions
of more than $11,000 ($22,000 if contributing with a spouse)
are subject to the gift tax. You may contribute up to a
$55,000 tax-free in one year ($110,000 with your spouse),
but that that contribution will be treated as if it were
being made in $11,000 installments over the next five years.
- The higher your tax bracket and
the longer your time horizon, the greater the benefit of
tax-sheltered compounding. According to TIAA-CREF, an investor
in the 31 percent tax bracket who saves in a 529 plan for
18 years would come away with 20.5 percent more than someone
who puts the same amount in the typical taxable balanced
fund.
- The tax saving you get from you
529 plan will blow up when it comes time to qualify for
financial aid.
- You can open more than one account
in a single state for the same child, and more than one
person can fund a 529 for the same beneficiary. No matter
the accounts the state limit still applies to each beneficiary.
- If you need to withdrawal, you
will pay taxes plus a penalty on the earnings (usually 10%)
if the money is not used for higher education.
- You
can contribute up to $2,000 annually t a Coverdell, regardless
of how much you contribute to a 529.
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Members
of: Financial Industry Regulatory Authority(FINRA),
S.I.P.C.
Securities Industry Association (S.I.A.)
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