The tax-advantage of a 529 Plan means that the investments grow in a tax-deferred basis and can be spent on qualified post-secondary education expenses in a tax-free manner. The initial investments are from after-tax sources.
The most significant advantages of a 529 plan are:
- The investments grow tax deferred.
- It provides a consistent and disciplined approach to planning and saving for an important family goal.
- It is a convenient approach for someone other than the parents, to aid in a student’s payment of college costs. Grandparents, aunts or uncles can set up and control their own plan and assist a future student in funding their education.
- The money is available for qualified post-secondary education. Certificate programs, vocational training as well as Community College tuition may be qualified.
- This is a useful tool in Estate Planning. It can be a revocable gift from an estate without being taxed.
Remember, every family is unique, so your use of a 529 plan will also be unique. Also, as a note of caution, consult your financial advisor, your Certified College Planning Specialist (CCPS), or your tax advisor for recommendations in your specific family circumstances.
Future blogs will discuss the disadvantages of the 529 Plan as well as discussing other approaches to paying for post college costs.