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VOL. 132 | NO. 110 | Friday, June 2, 2017

Dana and Ray Brandon

529 Plans – What You Should Know

By Ray and Dana Brandon

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Ray’s Take This August, I will be the proud parent of college freshman. With that pride comes the bills for tuition, room and board, books, etc. 

Dana and I have long believed that an education is the best gift to a child, but not at the expense of our own retirement. We started saving for college the moment we had social security numbers for our kids. With college tuition costs rising every year, saving early for education is one of the most important decisions parents can make. One vehicle for saving is the 529 plan. 

These plans offer a way to save for college by putting money into a specific account that is exempt from federal taxes. For states that have a state income tax, these accounts may also be exempt from state taxes for in-state residents. 

Adults typically open these accounts on behalf of a minor, but adults can utilize them for their own education. There are no age limits on these accounts.

For college savings plans, most colleges and graduate schools, along with professional and trade schools, are eligible. Funds from these plans can also be used to cover fees other than tuition, such as books and room and board.

When setting up these accounts, it’s important to take care with how they are named. Only one person can own the account, and there can only be one beneficiary. But individuals other than the owner can make contributions to the account.

When it comes to making withdrawals from these accounts, pay special attention to what is considered a qualifying expense. Also be careful not to withdraw over the limit to avoid tax consequences. 

Additionally, something to watch out for: These two scenarios can create a tax liability at the owner’s tax rate rather than the beneficiary’s tax rate, along with federal, and possibly state, penalties. To avoid potential tax headaches, withdrawal checks should be made out to the beneficiary of the account, or directly to the college on behalf of the beneficiary.

These plans vary from state to state. Consulting a planning professional can help you navigate the requirements and benefits of these accounts such as tax deductions, fees and expenses to build the account that is most suitable for the beneficiary.

Dana’s Take Saving for college can put a financial burden on families. Especially those with more than one child who will be attending college at the same time. A 529 plan could be a good option for your family. Another great option is to look into grants and/or scholarship requirements and use those as a way to pay for college along with work-study programs and student loans. 

Saving for your kid’s college education is a wonderful gift, just make sure it’s not at the expense of your retirement. They have a lifetime to pay back student loans, but your time to save for retirement is limited. 

Ray Brandon, CEO of Brandon Financial Planning, and his wife, Dana, a licensed clinical social worker, can be reached at brandonplanning.com.

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