Are 529 Plans Necessarily the Best for Everyone?

If you have been considering the 529-college savings plan, you will want to consider many things before choosing. Knowing whether this is the best type of plan for you is the first item on the agenda before investing.

You will want to consider the benefits of this type of college savings plan, and then you need to consider the downfalls of the plan when compared to other options. One of the best things about the 529 savings plan that makes it more versatile for a variety of people is that it offers two options.

You can choose between the pre-purchase plan and the traditional investment plan. This allows you to either buy college credit hours at today’s prices (which can save a lot), or invest in an allocated savings plan. However, this does not mean that a 529 savings plan will work best for everyone, and there are many factors to consider.

Since individual states operate their 529 plans, each state has its own incentives. This means that some states will offer more incentives and better benefits than others will.

 For example, in states where there is no income tax, the fact that this money does not count for this tax is not an added bonus. Additionally, some states have a higher minimum deposit required every month than others do. You should consider these important factors, along with comparisons to other plans.

If you do not have an amount to deposit every month, for example, you may want to consider a different type of college savings plan. This is because the 529 plan does require that you make an investment every single month. If you do not want to commit to this, there are other options available to you that do not have this same requirement.

Another consideration when you are trying to decide whether a 529 plan is best for you is how many children are involved. Designation of this money is for college funds only, so if you only have one child and no relatives that it could apply to, you may be taking a risk investing in this type of plan.

In some other college savings plans, the money does not have to be for college, so if your child decides not to attend school for a higher education, you retain the money. With the 529-college savings plan, however, you have many penalties if you do this.

One last thing to consider is the method of investment for the funds. Typically, a 529 savings plan works on an age-based program, with the funds for younger children allocated with more risk. As the child ages, and becomes closer to college ages, the investments become less risky and more stable.

This works well most of the time, but for those who like to control their own investment risks, this type of plan may not be for you. You do get the ability to predetermine how your accounts are invested, but with restrictions. Then, once this is set up, you can change your investment options once each calendar year on a steady account.

Therefore, while a 529-college savings plan is a great tool for saving college money, it may not be the best option for everyone. You should consider these factors, among many others, thoroughly before making a decision.

You should also keep in mind that no college savings plan is perfect, and pick the one that seems to fit your needs best. By doing a lot of research and comparisons, you will be able to find the plan that will work best for you, your child and your money.

The 529 College Savings Plan as an Estate Planning Move

Let’s take a brief look at the 529-college savings plan as an estate-planning move. A 529 plan is not merely just a great vehicle to fund your child or grandchild’s future. A 529 plan is an excellent tool to remove money from your taxable estate. This will assist you in lowering your tax liability and keeping intact more of your estate for your loved ones once you pass.

All 50 states and the District of Columbia now offer some type of 529 savings plans. A 529 plan is a state sponsored savings plan that invests money on behalf of beneficiaries. The earnings are tax deferred from federal income tax and most states have programs that will defer state taxes. If your beneficiary uses the money from this fund for any qualified education purpose, the withdrawals will be free of tax.

There is a lot of competition between states that has lead to very large contribution limits. This is good news for you as you plan your estate. 529’s have extremely simple investment options- age based and individual portfolios. Basically, these college savings plans afford the family the ability to transfer wealth from generation to generation, free of income, estate and gift taxation.

So what makes a 529 college savings plan so attractive to an estate planner? They do not have any income limits unlike the educational IRAs. Almost everyone can qualify for a 529. And if you’re looking for a way to reduce your estate tax bill, this is a great solution.

Take advantage of $11,000 in annual tax-free gift contributions. If you’re married that means you can contribute up to $22,000 for each beneficiary in one year. This is free from federal gift tax penalties. It is advisable to look into your state laws on gift planning for 529’s as they vary.

If you need to reduce the size of your estate you could contribute up to $60,000 (five years worth of gifts) in year one of a five-year period. Or if you’re married you can contribute up to $120,000. This is a good resource to transfer wealth by reducing the size of your estate and do away with estate taxes.

The account owner is always in charge of the plan’s assets. Even though the monies added are considered gifts, the owner does keep control. The donors can even take back the money for themselves or transfer the account to another beneficiary. If the owner of a 529 account were to die, the value of the account would not be counted in the estate.

The account value would be in the beneficiary’s estate. The exception to this would be if you had made the 5-year election and passed before the 5 years was over. Then, the part of the contribution that was assigned to the years after your death would be included in your federal gross estate.

It is also very easy to move the money in an account through 529 rollovers or by changing your beneficiary. If you have a need to distribute your estate, you can set up 529 plans for a large array of family members. This includes children, siblings, grandchildren, uncles, aunts, stepfamily, cousins and so forth.

If you need to transfer wealth, look into 529 plans as part of your estate planning strategy. At the very least, the 529 college savings plan, as an estate-planning move is something to discuss in more depth with your tax professional. This is an extremely generous gift for your beneficiary. Imagine the reward of knowing you've provided someone with the gift of an education.

What Contributing Grandparents need to know about 529’s

What exactly should grandparents need to know about 529 college plans? Some things just seem to go together like hot dogs and baseball, peanut butter and jelly, and of course, grandparents and 529 plans.

It’s a very lucky family that can depend upon grandma and grandpa to help with college tuition bills. College expenses aren’t exactly shrinking. The best gift that anyone could give could be your grandchild’s education fund and a 529 plan is a great way to get started.

A 529 plan is a state sponsored savings plan that invests money on behalf of beneficiaries. The earnings are tax deferred from federal income tax and most states have programs that will defer state taxes. If your grandchild uses the money from this fund for any qualified education purpose, the withdrawals will be free of tax.

Grandparents are allowed to contribute up to $11,000 per year per grandchild. So if Grandpa and Grandma have two grandchildren could place up to $44,000 in funds for the grandchildren without any gift tax liability. The grandparents would each have to set up 2 funds for each grandchild (a total of 4).

Grandparents will still have control over these funds and can retrieve the money if needed. Of course, there will be taxes and penalties on an unqualified withdrawal but the taxes and penalties will only be on your earnings, not on the amount of the original contribution.

The 529 plans have lots of investment options, which create a big decision for the grandparents to make. Grandparents typically are more conservative than the child’s parents. The most popular approach to 529 investments tends to be the age-based option. This is a simple way to save for college. You do not have to personally adjust your allocations over time.

The fund is managed according to the age of your grandchild. Younger children have more of a stock concentration. As your child gets older, the assets are automatically shifted into a higher ratio of short-term investments and more stable bonds.

Grandparents could also check and see if the 529 plan that your have set up will accept a third party contributions. This will take all of the worry about opening and maintaining your own accounts. State tax deductibility may be an issue if you go this route. Some states allow you a deduction for at least part of your contribution to their 529 plans. As a third party donor you will not be eligible for this deduction.

If you ever need to apply for Medicaid benefits, the state will look at your 529 plans as countable assets. You are eligible to take back the money you’ve invested so the money is technically available to pay medical or nursing home expenses. If you have this concern, it is an issue to discuss with your tax professional or attorney. It might be a good idea to make someone else the owner of the fund.

A big concern for grandparents is what would happen to the money in the 529 accounts if your grandchild chooses not to attend college. A great option is to change the beneficiary to another family member or even yourself. You can change the beneficiary as much as you want.

Another option is to take the money in the fund for your needs. The earnings in the account will be subject to a 10% penalty rate and will be taxable as income.  This is some of what contributing grandparents need to know about 529’s. It is a great way to invest in your grandchild’s future. You have picked an incredible gift to give to your very lucky grandchild.

Best States in Which to Fund your 529 Plan

What is a 529 plan, and how can it help your child achieve the best educational opportunities? Here is the skinny on what you need to know about a 529 college savings plan, including the best states in which to fund your 529 college savings plans.

What is a 529 College Savings Plan?

A 529 college savings plan is a special state-based college savings incentives program that helps you save money for your child’s college education. Not all states have a 529 college savings program that off the same kinds of benefits. Here are some things you should consider when you are choosing a 529 college savings plan.

Things to Consider When Choosing a 529 College Savings Plan

There are many important factors to consider when you are choosing a 529 college savings plan. First, you should consider the amount of time that your money will be invested.

You should consider your family’s tax bracket, how many (if any) fees and sale charges are associated with the plan, what kind of fees are involved, how much you will be investing, and what kind of state income tax deductions are allowed when you contribute. Pay close attention especially to fees. Even the slightest difference in percentage points will eventually add up.

Consider the State Tax Benefits

When choosing your 529 college savings plan, take into consideration your own state tax benefits. What kind of special tax benefits, if any, does your states 529 plan offer you? Does your state let you deduct all or part of your contribution on your state income tax form? This is something to consider.

What Kind of Costs are Associated with the Plan?

There are some plans that come loaded with high fees that will inevitably begin to eat into your returns. However, there are other plans with lower costs. Some analysts point to the plans managed by Vanguard and TIAA-CREF as those that have lower fees and costs.

Make sure you know exactly how much you will be paying in fees, including administrative costs, fund loads, management fees, and sales’ charges, both front-end and back-end. Ask for a list of all possible costs associated with the plan.

Consider the Different Investment Options

What kind of investment options are you looking for? Most state 529 plans offer different types of investment options. Decide what kind of investment style and performance you are comfortable with before you invest.

Who Has the Best 529 College Savings Plan?

Most analysts agree that it is a good idea to compare closely your own state’s 529 plans with the plans of at least two other states. Here are some things you should definitely consider when you are comparing different 529 college savings plans. First, consider what kind of state tax incentives will be available to you.

Does one state’s 529 plan offer tax-free withdrawals or special deductions? Is the plan generally affordable for you? What kind of investment performance has the plan shown in the past? Is the plan flexible enough for your needs? Does the plan offer low costs? These are all things to consider when you are finding the 529 state college savings plans that work best for your family.

Ranking the Best 529 College Savings Plans

Many analysts have ranked the best 529 college savings plans. In general, most analysts agree that the following states have some of the most desirable feature: Pennsylvania, Texas, South Dakota, Iowa, Virginia, Arkansas, Maryland, New Jersey, Nebraska, Florida, Utah, Hawaii, Illinois, and Louisiana.

Most analysts agree that most TIAA-CREF plans offer all-around desirable features. States with TIAA-CREF managed plans include New York, Idaho, Kentucky, Tennessee, California, Vermont, Georgia, Michigan, Connecticut, and Michigan.

Your Investment Options with the 529 College Plan

It’s time to research your investment options with the 529-college plan. It doesn’t matter how old or young your child is, its never too early or late to invest in their future. You just need to know your options to make the best choices for your money.

The first option is age-based. This seems to be the simplest way to save for college. Age based frees you from adjusting your allocations over time. Your assets will be managed according to the age of your child. Younger children will have portfolios with a higher stock concentration.

As your child ages, the assets are automatically shifted to a higher ratio of short-term investments and bonds that are more stable and will reduce your market risk.

You have three choices of age-based investment options- conservative, moderate and aggressive. For most age groups, the conservative investment has a higher concentration of assets in short term investments or bonds than the moderate.

Following suit, the moderate investment has more short-term investments and bonds than the aggressive. For example, conservative 529 portfolios for a 5 year old typically would be 50% stocks and 50% bonds.

A moderate portfolio for the same age would be 35% stocks and 65% bonds while an aggressive age based investment would be 100% stocks. Bond investments are safer as they do not decline as stocks do when the market sinks. But, keep in mind that they will not grow in value as much when the market rises.

You may find that the age-based funds are either too mild or too wild for your investment tastes. If this is the case you may want to set up an individual portfolio made of equity funds. In 529 savings plans there are so many different options. It depends upon the plan provider and your state. They tend to offer the same type of options as mutual funds.

Some of the investment options offered for 529 plans are growth funds, value funds, small-cap funds and mid-cap funds. Let’s just briefly look at these options. A growth fund tends to buy companies in the consumer staples, technology and health care. They typically sell at higher price to book value ratios. A value fund tends to buy companies in industrial, energy and financial arenas.

They typically sell at a lower price to book value ratios. They tend to outperform growth stocks over longer time periods. Small-cap funds own companies with market capitalizations of less than $1 billion while the mid-cap funds own companies with $1-$5 billion in market capitalization.

What does this mean for your plan? Individual portfolios offer many, many choices of stock funds, bond funds, balanced funds and money market options. Unlike the age-based investment options, the asset allocation of your portfolio will remain fixed over time. Regardless of your child’s age, your investment choice will not be altered.

If you decide to go the route of individual portfolio investments when starting your child’s 529 plans, take a look at the age-based plans. Use them simply as a guide for concentration of stock, bond, short and long term investment allocation.

Then, if you opt to go the individual portfolio route, they can help guide your future investments into the account as well as help you move your existing funds into more conservative investments, as your child gets closer to college age.

Your child is not getting any younger. Today is a great day to make some plans for college funding. Your investment options with the 529-college plan are so vast. It’s time to do your homework and pick an investment option that works for you.

A Sunny view on Florida’s 529 College Plan Options

Take a look to Florida for a sunny view on 529 college plan options. The Florida College Investment Plan (which is managed by the State of Florida) offers five great investment options. You can choose one or any combination of the investment options.

Once in a calendar year, you can transfer the money that you have already invested from one option into another. Plus, you can change the allocation of new monies as often as you please.

For a moderate risk option you should look into the first option, which is a Fixed Income Investment. This option is invested mainly into things like mortgaged backed securities, U.S. Treasury Bonds and corporate bonds.

The second option for your 529 is a little riskier. It’s the U.S. Equity Investment Option, which makes equal allocations of your monies among an S&P 500 index portfolio, a large capitalization growth portfolio and a large capitalization value portfolio.

The next option is my favorite, an Age Based Option. This allows you the flexibility to choose how conservative, moderate and high risk you wish for your 529 investments to be. It’s based on the age of your child. You would have more monies invested in equities the younger your child is. As your child gets closer to college age, there would be an increase in the amount invested in fixed income investments.

The fourth of Florida’s 529 college options is a Balanced Investment Option. What this means for you is that your monies are equally distributed between the U.S. Equity Investment Option and the Fixed Income Investment Option.

The goal of the Balanced Investment is to create long-term growth but with less risk than by investing alone in the U.S. Equity Investment Option. This portfolio is reviewed occasionally to keep a 50/50 allotment of monies to the U.S. Equity Investment Option and the Fixed Income Investment Option.

And last but not least is the 529 Money Market Fund Investment Option. This fund has a portfolio of short-term fixed income securities, money market and cash securities. The goal of this fund is to keep your main investment and obtain high liquidity through short-term securities.

The great thing about these 5 options for Florida’s 529 plan is that you can pick just one or a combination. Do whatever fits your financial goals best.

The fees for these accounts are minimal. Expect a $50 enrollment fee, and an asset management fee of 0.75%. Unlike a lot of other 529 plans, the Florida College Investment Plan charges no commissions or sales tax. You do not have to be a resident of Florida to participate so it’s a great plan for grandparents to invest for their grand children who live out of state.

The minimum opening amount is $250 and your account has a maximum funding amount of $341,000. Once the total value of the accounts for the each child reaches $341,000 you cannot add any more monies. But the market value can continue to grow and you can have accounts of $341,000 for more than one child. There are no age restrictions either, so you can even open an account for an adult.

Imagine $341,000 stowed away for college that is growing tax deferred. And when your child is ready for college, qualified expenses are exempt from federal income tax. Plus, the great state of Florida has no income tax and the plan assets are exempt from Florida Intangible tax. There is a sunny view on Florida’s 529 plan options. Florida is a great place to have a 529 plan for your child.