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529 plans: tax-friendly education expense planning

College PlanningIn recent years, College Savings Plans -— also known as “529 qualified tuition programs” -— have become a very popular way to help families save for their children’s education expenses. However, many investors are still unaware of the generous tax benefits* these accounts may provide. Another key factor is the broad flexibility they offer; in other words, how the money can be utilized once the child is ready for college.

You control the investments in a 529 plan

First, if you contribute money to a 529 College Savings Plan, it’s important to know that you control the investments. Therefore, you also control the risk and future potential growth of the money. This is ideal, of course! If we assume that the money grows over the years and is later withdrawn to help with education expenses of the child -— the growth (over and above your contributions) is tax-free. Not just tax-deferred, but tax-free… that’s a nice benefit. The money must be spent on qualified expenses for this to uphold. While savings accounts and brokerage accounts may be potential ways to assist in your education planning, make sure you are considering a 529 plan.

College GraduationWhat is a qualified expense for a 529 plan?

Fortunately, “qualified” expenses that allow for tax-free withdrawals from the account are very broad. No matter if the child attends a school in-state or out-of-state, the money qualifies for the tax-free status. This is a differentiating feature versus other state-run pre-paid tuition programs. Also, the money can be used for undergraduate or post-graduate level expenses, a vocational or technical school, community college, or university. They can also be used for a plethora of associated costs such as tuition, room and board, books, a computer or laptop, and so on.

Let’s get started

Consult your own Financial Advisor and tax advisor about whether a 529 College Savings Plan is right for your family. If you have children who will be college-bound in a few years, this type of plan may help you save in a very efficient manner!

*Some states provide benefits including state tax incentives to residents who invest in their home state’s 529 plan. And six states — Pennsylvania, Arizona, Missouri, Minnesota, Montana and Kansas — provide for state tax parity, which means contributions to any state plan are eligible for that state’s income tax deduction.

For more information about the plans mentioned above please refer to the MSRB Investors Guide to 529 Savings Plans:


August 2019


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

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