529 Benefits

1) Federal tax benefits

Here's the deal: You do not pay any income or capital gains tax on the money your plan earns each year as long as you spend the money on college expenses. This tax benefit is why 529 plans are so attractive to parents looking for a college savings option. When the time comes to tap the account, withdrawals will be both federal and state tax-free as long as the money goes towards qualified higher education expenses (QHEE), including tuition, books, fees, supplies, and equipment. Room and board can also fall under QHEE, but there are stipulations; your Parent Investment Expert will have the full details.

2) State tax benefits

On top of no state income taxes on the earnings, some states offer tax deductions on contributions for residents investing in their state sponsored plan. Talk to your Parent Investment Expert to find out if your state offers tax advantages.

3) Parental control

With a 529 plan, you control the cash, which means that even though you have named your child as the beneficiary, you are in charge of deposits and withdrawals. So, if your child chooses a Harley over Harvard, you won't have to worry - at least not about your 529 plan - because you can change the beneficiary on the account at any time. This degree of parental control is not available with other college saving programs, including Coverdell Education Savings Accounts (ESA), Uniform Gift to Minors Accounts (UGMA), and Uniform Transfer to Minors Accounts (UTMA).

4) Flexible contribution amounts

A 529 plan allows for generous contributions which is a definite bonus for higher income families. Some plans start as low as $25 a month when you enroll in an automatic investing plan, which makes it affordable for families who are just starting. Call your Parent Investment Expert to learn more.

5) Investment choice

Within a 529 plan, you can choose from a variety of mutual funds that invest in a diverse array of stocks and bonds from many well known fund families. Your account will go up or down in value based on the performance of the particular option you select. Or, you can choose an age-based portfolio with an investment strategy that changes depending on how old your child is. When your child is young and there's more time to ride out the ups and downs in the market, these portfolios invest more aggressively for potential growth. They get more conservative as time goes on, in order to protect your investment earnings. Many people like this approach because it allows them to "set it and forget it" rather than worrying about how to manage their investment.

6) Gift and estate-planning benefits

If you're the account owner on a 529 plan, you can make a tax-free gift of up to $65,000 per beneficiary in a given year, or $130,000 if you're married and filing jointly. The catch is that you're electing to use five years of the annual gift tax exclusion (currently $13,000) all in one year, so you can't gift any additional amount to that beneficiary any time during that five-year period without incurring tax implications. Relatives like Grandparents and Uncles and even freinds can also help fund a child's education and receive gift and estate tax benefits utilizing 529 Plans up to $13,000 per year. 529 plans have a slew of other gift and estate-planning benefits, but they get a little confusing, so ask your Parent Investment Expert to give you a detailed summary.