May 29th is “529Day” and it is used as a day to promote saving for education via a 529 Savings Plan. What exactly is a 529 Savings Plan?
Very few Americans know that 529 Savings Plans are an education savings tool. 529 Savings Plans were established to help parents and grandparents save money for post-secondary or higher education. Their unique features make them one of the more popular ways to save for college.
Account owners can receive a tax deduction or credit for contributions (check your specific plan in your state) and earnings grow on a tax-advantaged basis. Furthermore, when you withdraw the money, it is tax-free if the funds are used for qualified education expenses such as tuition, fees, books and room and board.
Investing in a 529 Savings Plan has little effect on your child’s ability to qualify for financial aid under FAFSA. If your child is a dependent and you are the account owner, the 529 Savings Plan is considered your asset. This means only 3-6% of the 529 Savings Plan’s total account value will be counted towards your Estimated Family Contribution (EFC), as determined from FAFSA.
529 Savings Plan Highlights
- Tax-deferred investment growth
- Tax-free withdrawals for qualified expenses
- Gift and estate tax benefits
- Control by you over how assets are used
- Flexibility to use at eligible colleges, universities and vocational schools worldwide
For more information about financial aid eligibility, you should consult with a financial aid professional and/or the state or educational institution offering a financial aid program.
Adam M. Sutton is the founder and president of Cornerstone Financial Partners. Adam is a financial planning professional, specializing in retirement income planning and wealth optimization strategies. He is a Series 66 licensed Investment Advisor Representative (IAR), as well as life, accident & health insurance licensed and is certified to address long-term care. Cornerstone Financial Partners is a privately held, independent financial planning firm.
Full Disclosure: This information does not constitute investment advice. This article is published and provided for informational purposes only. None of the information contained in the article constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. To the extent any of the information contained in this article may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Cornerstone Financial Partners does not provide legal or tax advice, and the contents of this message are not intended to constitute such advice. Please seek an appropriately licensed individual for legal or tax advice in relation to your individual situation.