College Savings Made Simple

 The 529 College Savings Plan is a good fit for most new families, and getting started is easier than you think.

 

Starting a College Fund 

By Steven Lease
Edited by Amy Crelly

As a Financial Advisor and a new father, I had the task of starting my daughter’s college fund. What seems like a simple choice is complex in that there are way too many choices. What account type and plan do I want? Which mutual funds do I want to have access to? The list goes on and on. I wanted to have money set aside for my daughter’s education, but I didn’t want her to have it on her 21^st birthday to spend on a new car. I also didn’t want a $2000 annual contribution limit. So, I decided to open a 529 College Savings Plan.

With a 529 plan, assets grow tax-deferred and qualified withdrawals are federal income tax-free. Individuals of all income levels can open a 529 plan.  They must be at least 18 years old and a citizen or permanent resident. Some can be started with $25 to $50 per month, and grandparents or other relatives can make contributions. With a 529 plan, the account owner (that would be you, not your child) retains complete control, including the ability to change the beneficiary (so, should your child’s plans change, your 529 savings can still benefit a sibling or other relative).

---

Editor's Tip: Different states offer different 529 plans, and they can vary widely. A California plan may not offer the best tax incentives, for example, but you're not limited to the plan offered by the state where you reside. So, as you look into investing, be sure to consider other states' options. 

---

Non-qualified withdrawals of earnings are taxable as ordinary income and may also be subject to a 10 percent penalty. In addition, many 529 plans have a contribution limit in excess of $200,000*. Of course, you'll want to be sure to discuss your particular tax situation with a tax professional.

If saving for college is a concern, start asking questions to find out which plan is suitable for you… because their college years are closer than we care to admit.

Invest Carefully
The value of a 529 College Savings account may fluctuate, and there is no guarantee that any investment portfolio will achieve the stated goal. Your investment may be worth more or less than its original value.

Investors should consider carefully the investment objectives, risks, and charges and expenses associated with a 529 College Savings Plans before investing or sending money. The official program offering statement, which includes this information, is available from your Financial Advisor and should be read carefully before investing.  Before investing consider whether tax or other benefits are only available for investment in your home state 529 college savings plan. 

Steven Lease is a local dad and a Financial Advisor with Morgan Stanley Smith Barney LLC, member SIPC. He can be reached at the Auburn, CA branch: 530-886-5072.

*Contribution limits vary by state. Refer to the individual plan for specific contribution guidelines.

The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.  The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.