Beginning to plan for a child’s education can seem like a daunting task. With the costs of college rising as much as 5% per year, the time to start saving and planning is now. For example, the national average cost of a:
- 4-year public university today is $24,490 per year. In 18 years, that cost might be as much as $63,508 per year, or $254,031 total for 4 years.*
- 4-year private university today is $54,670 per year. In 18 years, that cost might be as much as $141,771 per year, or $567,083 total for 4 years.*
A 529 Education Savings Plan (529 plan) can be a great way to save for your children or grandchildren’s education. Below are some of the key benefits of a 529 plan.
There are important tax advantages for using a 529 plan to fund a child’s education. Not only are the account’s earnings tax deferred, but you will not pay any federal tax on earnings as long as the proceeds are used for a qualified education expense. This can allow your savings to grow more quickly.
You can contribute up to $17,000 in 2023 (up to $34,000 for married couples) per child annually without gift-tax consequences. Under a special election, you can invest up to $85,000 ($170,000 for married couples) per child at one time by accelerating five years’ worth of gifting, provided you make an election on your tax return to spread the gift evenly over five years.
Some states allow a tax deduction from (or credit against) state taxes for all or part of your contributions. Please speak with your Financial Advisor or tax professional about the potential tax benefits of contributing to a 529 plan.
- The account owner (rather than the beneficiary) maintains control of the account, and determines the amount and timing of distributions.
- You can change the beneficiary to another qualifying family member, or yourself, without penalty.
- When plans change, the beneficiary can be changed. If the child receives a scholarship or skips college altogether, the beneficiary can be changed to another qualifying family member or the account owner themselves.
- 529 plans have no time or age limits on contributions or withdraws. Money can be kept in a 529 plan indefinitely. This is different than prepaid tuition plans and Coverdell Education Accounts.
- There are no income limits. You can contribute regardless of how much you earn.
- You can set up a plan for a child who isn’t born yet. Name another family member or yourself as the beneficiary and change it later (check the details of your state’s plan for age restrictions of the beneficiary).
- There is typically no or low minimums to start a 529 plan.
Choosing A 529 Plan
There are more than 100 plans across the country to choose from. Your Financial Advisor can help you select the plan that is in the best interest of your family. There are different investment programs in every state, and most 529 plans have no state residency requirements. Check to see if your own state offers tax benefits for investing in their savings plan.
Many 529 plans offer age-based funds, which are predetermined mixes of investments designed to automatically rebalance to reduce risk, and become more liquid as the child gets closer to attending college.
You can also work with your Janney Financial Advisor to create a customized plan.
Investing In A 529
For a child who was just born, you would need to save $110 per month for every $5,000 of college expense you want to fund assuming a four-year education and a 6% rate of return.
That amount increases as children age:
- At age 5, you’ll need $130/month
- At age 10, you’ll need $170/month
- At age 15, you’ll need $270/month
The Fine Print: A Few Things To Note About 529 Plans
Account distributions are tax-free if used for qualified higher education expenses—which include tuition, room and board, fees, books, supplies, and equipment (including computers).
If you withdraw money from your 529 plan account for purposes other than higher education, your earnings will be subject to federal income tax and possibly a 10% federal tax penalty.
Your 529 plan holdings could impact your beneficiary’s ability to qualify for student loans and grants. Ask your Financial Advisor for details.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts.
For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.
Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
This is for informative purposes only and in no event should be construed as a representation by us or as an offer to sell, or solicitation of an offer to buy any securities. The factual information given herein is taken from sources that we believe to be reliable, but is not guaranteed by us as to accuracy or completeness. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors. Employees of Janney Montgomery Scott LLC or its affiliates may, at times, release written or oral commentary, technical analysis, or trading strategies that differ from the opinions expressed within.
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
The examples provided are all hypothetical and do not take into account any specific situations. The hypothetical examples are provided to help illustrate the concepts discussed throughout and do not consider the effect of fees, expenses, or other costs that will effect investing outcomes. Any actual performance results will differ from the hypothetical situations illustrated here. Please consult a professional to help you evaluate your situation before implementing any of the strategies discussed here.
* Source: Janney College Savings Planner
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