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:

• Four-year public university today is $25,280 per year. In 18 years, that cost might be as much as $69,062 per year, or $276,248 total for four years.^*
• Four-year private university today is $57,440 per year. In 18 years, that cost might be as much as $156,919 per year, or $627,676 total for four years.^*

A 529 Education Savings Plan (529 plan) can be a great way to save for your children's or grandchildren’s education. Below are some of the key benefits of a 529 plan.

Tax Considerations

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 $18,000 in 2024 (up to $36,000 for married couples) per child annually without gift-tax consequences. Under a special election, you can invest up to $90,000 ($180,000 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.

Control

• 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.

Flexibility

• 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 are typically no or low minimums to start a 529 plan.

Choosing A 529 Plan

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 Financial Advisor to create a customized plan.

Investing In A 529

For a child who was just born, you would need to save $114 per month for every $50,000 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 $174/month
• At age 10, you’ll need $288/month
• At age 15, you’ll need $565/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.