You won't need a PhD in math to appreciate how 529 plans can help fund educations and add up to real tax-savings. Here’s a quick overview of 529 education plans and why they can have multi-generational benefits. By the way, these plans are no longer limited to public schools, so keep reading even if your children or grandchildren are going to private schools.
529 + 529
First, there are actually two types of 529 plans: college savings and prepaid, with the most common type being college savings.
In a college savings 529, any investments grow tax-free. Funds can be used, tax-free, for several qualifying expenses. This includes tuition, room and board, and required textbooks.
Pre-paid plans work differently. Think of them as buying options on in-state tuition for public education at current (not future) tuition rates. With constant increases in tuition, this can be of significant value.
The State of 529 Plans
All 529 plans are handled at the state level. Some states offer additional tax savings for in-state plan contributors. But there are so many differences in both types of plans, state by state, you will need to focus on your own state to cut to the chase.
Long-term 529 Plans
A 529 plan is immortal—sort of. A well-funded 529 plan could help pay for tuition from kindergarten through college. But it wouldn't have to stop there. Now you can even use 529 funds for graduate school. But it doesn’t even need to end there. Let's say you've fully stocked a 529 plan for your child, but then your child becomes a scholar (or athlete scholar) superstar. Maybe they get major scholarships, so now your 529 seems overfunded. Probably there’s a promising grandchild or two in the family who would benefit from the same plan, because you’re allowed to change beneficiaries.
To sum up, it’s best to study up on 529 plans well before it’s time to plan those college visits. Because the tax implications vary by state and by plan type, it’s best to go over your options with a financial advisor.
This communication is for informational purposes only and should not necessarily be regarded as legal, tax, or customized financial advice or comment or as an official statement of the firm, or any agents thereof. The material being provided is thought to be accurate. However, the information is compiled from multiple resources and may become outdated or otherwise rendered incorrect by new research or corrections, without notice J.L. Bainbridge & Co., Inc. is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information related to our firm, please see our disclosure brochures at jlbainbridge.com and https://adviserinfo.sec.gov/firm/summary/108058.
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