Taking advantage of CollegeAdvantage 529 plans

With the new year we often refocus on financial goals for ourselves and our family, and one of those goals is often saving more money. 529 savings plans (also called CollegeAdvantage plans) offer a great way to save for your children’s or grandchildren’s college education, but there is a lot more to 529 plans than meets the eye.

Traditionally, a 529 savings plan allows for a parent or grandparent to save money for a child’s higher education expenses. The money gifted is after-tax dollars and the account grows tax-deferred and if the funds in the account are used for qualified education expenses, the withdrawals are tax-free. There are generally no substitutes for tax-deferred growth and tax-free withdrawals, and utilizing these IRS allowances can immensely improve the value of the account. Additionally, if you are using a state-sponsored plan, such as the Ohio 529 plans (of which there are currently four), you may be entitled to a state tax-deduction from your tax returns.*

Many of us wonder just how much we will need to save monthly or annually in order to provide for our child’s college education, and the answer is ever-changing. First, you must decide how much of your child’s education you intend to pay for. Do you want to pay for it all, or do you want to pay for a portion? You can utilize a wide variety of calculators online; www.savingforcollege.com is one place to find an array of tools and calculators.

Next you have to decide whether you would like one of the four Ohio plans or another state’s 529 plan, because you can invest in just about any state’s 529 plan. You lose the Ohio state tax-deduction in doing so, but some other states also offer tax incentives as well.

Looking at some non-traditional uses of 529 plans, you can see where the plans offer some great features. First, 529 plans in the state of Ohio, as well as some other states, offer creditor protection, which means that even though you are the donor, your creditors are not able to touch those funds. Secondly, as the owner of the account, you are free to gift money into the account and free to withdraw money from the account. If the withdrawal is not for higher education expenses, however, you may face a penalty and tax consequences, so be sure to review the plan details. The important point is that 529 plans are the only vehicle that allows you to gift money, remove those funds from your taxable estate, yet still maintain complete control over the assets.

You don’t have to be a parent to have a 529 plan; you can establish a 529 plan for yourself, a spouse or anyone with a valid Social Security number or U.S. taxpayer identification number.  Many know 529 plans as a tool for saving for our children’s college expenses, and while that is certainly true there are numerous additional benefits that the 529 plan can offer you. I hope this article has taught you a few of them; be sure to do your own research, consult your tax professional and your trusted financial professional for more information.

Mark Zagrocki is a Financial Advisor and Chartered Retirement Planning CounselorSM in Westlake.

Wells Fargo Advisors did not assist in the preparation of this report, and its accuracy and completeness is not guaranteed. The opinions expressed in this report are those of the author and are not necessarily those of Wells Fargo Advisors or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Investors should consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest. An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 college savings plan.

*The availability of such tax or other benefits may be conditioned on meeting certain requirements. Wells Fargo Advisors is not a legal or tax advisor. Investors should consult with their own tax and legal advisors before taking any action that may have tax or legal consequences. 529 Plans are subject to enrollment, maintenance, administrative and management fees and expenses. Non-qualified withdrawals are subject to federal and state income tax and a 10% penalty. College savings plans offered by each state differ significantly in features and benefits. The optimal plan for each investor depends on his or her individual objectives and circumstances. In comparing plans, each investor should consider each plan’s investment options, fees and state tax implication. Wells Fargo Advisors, LLC. Member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. Investment and insurance products: Not FDIC insured/ NO bank guarantee/ May lose value

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Volume 2, Issue 1, Posted 6:42 PM, 01.07.2010