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August 18, 2017 | Financial Planning
529 college savings plans are widely touted as the most effective way to save for college education expenses. Contributions to a 529 plan may be state income tax deductible, grow federal and state tax-free, and can be withdrawn federal and state tax-free if used for qualifying higher education expenses (e.g., tuition, room & board, books, supplies, computers, software, equipment, etc.). As the use of 529 plans has proliferated, however, more people are facing a situation where a portion of the balance may not be needed for college.
The variables involved in planning for college expenses make it tricky to save just the right amount to cover future costs. For example, factors such as future tuition inflation levels, scholarships, your child’s decision to attend a public vs. a private institution, to attend an in-state vs. out-of-state institution (or attend college at all), and variability in future investment returns all make planning for college expenses a difficult task. Luckily, while some minor child savings vehicles require that the assets are turned over to the child at a particular age (e.g., UTMAs/Uniform Transfers to Minors Act), 529 plans allow the account owner to maintain control. Furthermore, 529 plans provide several avenues to divert/divest excess or unused plan balances. Potential options are listed below.
As you can see, there are several benefits to using a 529 plan and multiple ways to continue using 529 assets even if the intended student doesn’t require all of the account.
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