Wealth Plan

College Savings Programs

College is more expensive than ever. The average cost for tuition and fees at four-year public institutions has increased over 50% during the last 10 years. Without proper planning, your child could be burdened with loans. Help give your child a jump-start on their life by starting a college savings plan.

A 529 plan is a tax-advantaged savings plan sponsored by states, state agencies, and education institutions. This plan can help you save for your child’s education—or even lock in current tuition rates—for when your child is ready to attend college.

There are two types of 529 plans:

Savings Plans: This is the most common type. It works much like a 401K or IRA. You invest your contributions into mutual funds or similar investments. The value of this plan is based on the performance of what you’ve selected.

Prepaid Plans: This plan can be a great hedge against the skyrocketing costs of college tuition. You pre-purchase your child’s tuition based on today's rates. The Prepaid Plan pays out at the actual cost of tuition when your child enrolls in college. The plan is convertible for both private and out-of-state colleges.

529 Plan Advantages

• 529 Plans grow tax free, so you pay no federal tax on your earnings. You can also take generous gift tax incentives and state tax deductions for contributing in some states. Plus, anyone can contribute to the plan.
• Money grows faster than with a savings account, and you have complete control of your assets.
• You can change the beneficiary to another eligible family member if the original beneficiary is awarded a full scholarship or decides not to go to college. Funds can even be used for a parent who wants to go back to school.
• Your child can attend just about any school in any state no matter which state the 529 plan was established in.

529 Plan Drawbacks

• You must use it for college or vocational schools. Withdrawing money for any other reason means paying a 10% penalty on the earnings.

• Like an IRA, money in your 529 Plan is only as safe as the investments you choose. Earnings and principal can be lost if the market fluctuates. A more conservative allocation can help reduce this risk as your child nears college age.
• You'll have to pay management fees with a 529 plan. However, even with the added expense of paying fees of 0.50 to 1 percent, your funds will likely grow much faster than if it was left in a savings account.

Need help deciding which 529 plan is best for you? Sit down with our advisors—we can help you compare the different plans and develop a strategy that meets your savings goals for college.

Advanced Financial Planning

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