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7 Reasons 529 College Savings 

  Section 529 plans are administered by state agencies, but the investing, record keeping and reporting is usually delegated to a commercial investment firm. Every state has at least one 529 in place and some have several.
1. Impact on Scholarship and Financial Aid Eligibility is Minimal
When a college financial aid office is calculating student eligibility for aid, they will only apply 5.64% of the 529 Fund value as an asset. If the student controls the fund, that same 5.64% is used to calculate the Expected Family Contribution (EFC) which is based on assets and income. For a standard student savings account, the financial aid calculation applies 20% of the balance. This protective feature is one of the major innovations of a 529 plan.
2. Tax Free when Withdrawn to Pay for College Expenses
Unlike IRAs and other federal savings plans, these college funds are not subject to taxation upon withdrawal. They are a great mechanism for building a college nest egg that is subject to substantial tax benefits and that does not alter financial aid eligibility. Here are several ways that everyone in the family can contribute to building tax-free college funds.
3. Tax Breaks on Savings Contributions
While your contributions to a 529 are taxed by the IRS, thirty one states and the District of Columbia offer breaks in state income taxes for 529 contributions. There are generally no limitations to your selection of a 529 plan – you can live in California, invest in an Indiana 529 and send your student to a Florida university.
4. Students can Contribute Too
If your student is working to help save college dollars, they can contribute to the 529 fund and not have their eligibility for financial aid come under scrutiny. High school students working part time aren’t generally going to be paying federal income taxes, so those dollars are tax free going into the account and coming out.
5. Fund Growth is Tax Free
The investment profits accrued by a 529 are also tax free if applied to legitimate college expenses. It’s another form of shelter for college savings that are set aside to grow as an investment while the student grows to college age. Legitimate college expenses include books, tuition and room & board.
6. Family Members can Contribute Subject to Gift Tax
If a grandparent or other family member wishes to contribute to the 529 they can do so as a gift and do so tax free if the gift is under the $13,000 annual federal tax-free limit. Those donations are also limited by the other strings included in gift tax rules, so the law is worth checking.
But unless the contribution is a large one, it’s a great way to help bring a grandchild or favorite niece along with minimal tax impact on anyone. If a grandparent owns the 529 Fund, it is not calculated in financial aid eligibility at all.
7. Fund Management is Simple
It’s important that all withdrawals apply to eligible college costs. Ineligible expenditures are subject to taxation plus a 10% penalty. But dispensing the funds is relatively simple – it can be done by the plan manager to the plan owner (parent, grandparent or student), to the student or to the college. At the end of the year the college will inform you of the eligible expenses charged to the student beneficiary.


If you would like to discuss helping your children or grandchildren prepare for the expenses of college, feel free to contact me to set up a complimentary review of your current program. I hope to hear from you soon!

Gary D. Copher
Senior Regional Leader
Primerica Financial Services/PFS Investments
Madison, MS 39110
601-942-5510 -Cell
769-233-7010 -Home
601-707-0195 -Office
601-707-0198 -Fax
www.primerica.com
 

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