Navigating 529 Plans: Building a Solid Foundation for College Funding

by HoyleCohen Wealth Advisor, Ismar Zildzic

In this final piece of our college financial planning series, we uncover the potential of 529 plans. 529 plans, or state-sponsored investment accounts, are tax-advantaged savings vehicles designed to help families save for higher education expenses like tuition, fees, books, supplies, and certain room/board costs. While each 529 plan is different (a state agency or educational institution selects a plan manager for each plan and determines the rules and limits for the plan), they offer families the opportunity to capitalize on tax-free growth and withdrawal! Whether you have an unborn child, toddler, or teenager, it’s never too early (or late) to start planning.

Exploring 529 Account Options

There are two types of 529 plans – prepaid tuition plans and college savings plans. Prepaid tuition plans allow you to lock in future tuition costs at today’s prices, providing potential savings if tuition increases in the future. Currently, nine states offer prepaid tuition plans. Alternatively, college savings plans function more like investment accounts, allowing you to choose from various investment options to grow your savings over time.

Benefits of Opening a 529 Plan

• Tax advantages: Earnings grow tax-free, and withdrawals for qualified expenses are not subject to federal taxes.
• Flexibility: Funds can be used to cover costs of eligible institutions nationwide, including colleges, universities, trade schools, and even international institutions.
• Control: Families retain control of the account, deciding when and how to use the funds.
• Roth Funding: Per the Secure 2.0 Act, $35,000 of your 529 fund can be rolled over into a Roth IRA for the beneficiary(ies) if the funds are not used for college. *Restrictions and provisions apply for this type of conversion, so be sure to connect with your advisor before implementing.

Planning early to fund a 529 account can work synergistically with student loans to cover future education costs, allowing families to engage in a more balanced approach to financing education. Investing early in a 529 plan lengthens the time horizon to contribute to it, potentially enabling your savings to grow more significantly and allowing you to make smaller, more manageable contributions.

Remember to plan and consult with your advisor to ensure 529 plans align with your specific financial goals and circumstances. For more information about 529 plans, visit the SEC’s 529 page and my529.org.

While embarking on a college financial plan can seem intimidating, maybe even unattainable to some, it isn’t. With the right information, and a trusted advisor to provide guidance, you can embark on the journey and start saving and investing today. Estimating costs, understanding and tapping into the various funding sources, and consulting with an experienced professional about 529 plans are excellent steps to take in building a balanced and successful college funding plan.

Want to get started? Contact our office today to speak with an advisor.

Your partner in financial planning,
HoyleCohen

Click here to download the full pdf on College Planning: The Basics

Disclosures: The information provided here is general in nature and is shared for information purposes only; nothing herein should be interpreted as investment or tax advice. Any and all tax laws and/or specific tax rates referenced are subject to change. It should not be assumed that future performance of any specific investment or investment strategy will be profitable. Always consult your CPA/tax advisor/attorney (or reach out to us;) to discuss your specific situation. All investments carry the risk of loss, including the permanent loss of principal. Past performance is no guarantee of future results.