The temptation to spend funds meant for another purpose can be high when your savings and investments are lumped together. When saving for education, having a “bucket” earmarked specifically for that purpose can get you started on funding educational needs and a 529 Plan may be a powerful tool on your savings journey.
The temptation to spend funds meant for another purpose can be high when your savings and investments are lumped together. When saving for education, having a “bucket” earmarked specifically for that purpose can get you started on funding educational needs and a 529 Plan may be a powerful tool on your savings journey.
A 529 Plan is an education savings account designed to help save for future college costs and other qualified educational expenses. Anyone (parent, grandparent, friend, self) can set up the plan for the benefit of themselves or another beneficiary in order for contributions to grow tax free and anyone can contribute to the Plan on the beneficiary’s behalf. Not sure if a 529 Plan is right for your family? Our financial planning team can help you evaluate education savings strategies that align with your overall financial goals. Explore Allos+ planning services to get personalized guidance.
Many college graduates are finding the burden of student loans hard to repay and they may be setting them back in terms of saving for their future. In the 30 year period from 1982-2012, college tuition costs increased by over 700 percent and if jobs aren’t readily available for graduates, their debt could hinder their success. The 2016 Parents, Kids and Money survey found that 62% of kids expect their parents to pay for whatever college they want to attend. Would you be prepared to cover the costs of your child’s education? A 2013 study found that parents who save with a 529 Plan when their children are young pay half as much for their child’s education compared to families that utilize loans.
529 Plan Flexibility
The opportunity to change beneficiaries on these accounts helps the owner save early. Parents can set up a plan with themselves as a beneficiary before they have children and then update it to their child’s name once they arrive. If you have a Plan set up for a beneficiary that doesn’t attend college or gets enough money to cover the expense, the Plan can be designated for another beneficiary who will use the funds. If the original beneficiary does not use all of the funds in their account, the beneficiary could be updated for the use of another person or rolled over to an account for a sibling not already in college.
For a child who receives a scholarship to cover tuition, they can take a distribution from the Plan equal to the amount they receive. This distribution may be subject to taxes but the ten percent penalty could be waived from a tax-free vehicle into a tax-deferred vehicle and be used to repay the Plan owner (typically their parent).
While there are many options for saving for college, starting early and utilizing tools such as the 529 Plan can help you get a jump start on financing your children’s education and help them get a jump start on their future. Ready to start planning for your child’s education? Contact our team at 913.948.7788 or learn more about how Allos+ planning can help you build a comprehensive education savings strategy. Whether you’re exploring 529 Plans or other investment options, we’re here to guide you every step of the way.
Jessica Searcy Kmetty, AIFA®, ChSNC®, CDS®, CPFA®, GFS®, C(k)P®, PPC™, is Principal at Allos Investment Advisors. With more than two decades of experience in financial planning, she works with divorced women, female entrepreneurs, blended families, and families with special needs children. Jessica brings personal perspective and specialized training in divorce, special needs, fiduciary, and retirement plan services to her planning conversations.
