If you have young children and have been looking into options as to how you should go about saving for their college years, one option you may want to consider is starting a 529 plan. A 529 plan is an investment vehicle designed to help families save for their children's future college education expenses. Contributions to your 529 are invested in mutual funds and other investments that have the potential for gain as well as loss. The benefit of owning a 529 is that all of the potential earnings from your investments will be federally tax free when used for qualified educational expenses. These qualified expenses include tuition, fees, certain room and board expenses, and even books. Most public and private institutions in the U.S. and overseas are eligible for qualified 529 distributions.
529's are offered by most states in the U.S. and are available to anyone with a social security number or tax ID number. Every plan differs on a state-by-state basis; however, there are no state residency requirements for owning a 529. For example, a family living in Florida could fund a New York 529 plan and send their child to a school in Texas without any penalties or restrictions. It is worth noting however that some states may offer further benefits to 529 account owners that are also residents of that state. As an account owner, you can name any beneficiary you want, living anywhere in the U.S or abroad, and can change beneficiaries free of penalties at any time as long as the new beneficiary is a qualified family member.
While all qualified withdrawals from a 529 plan are federally tax free, many states also offer certain state tax benefits as well. For example, New York State allows for its taxpayers to deduct a maximum of $5,000 every year from state income tax returns based on the contribution amount to their New York State 529 plans ($10,000 if married and filing jointly). To learn more about the benefits of funding a 529 plan, feel free to reach out to me.
Angelo A. Costanza, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).