Saving for Family Education Expenses with Tax-Advantaged 529 Plans

Financial advisor Cary Stamp, based in Jupiter, FL, discusses the ability to maximize savings for family education expenses while reducing your income taxes, using 529 Plans. Tax-free distributions from these plans can be used for elementary and secondary private school, and undergrad and graduate college.

 


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TRANSCRIPT:

I’m Cary Stamp, and this is a Principled Wealth Moment. I’m going to share a strategy that you can use to maximize your savings for college and reduce your income taxes. It’s called the 529 plan. This is a special account that is set up in the US Tax Code for college savings.

Every state runs their own 529 plan and you can invest in any state’s 529. You don’t have to invest in the plan in the state where you live. Every year, you can deposit money into this 529 account and all of the interest that it earns, plus all of the money that you put into the account can come out tax free when your kids go to college, if it’s used for qualified higher education expenses. That’s a pretty broad definition.

The other thing that you can also do is what’s called a prepaid plan. Many states at state universities offer a plan where you can prepay the tuition for a child as young as a newborn infant to a child that’s 18 years old. You pay the tuition in advance, it locks in that rate of tuition and you avoid future increases in the cost of college. Both of these solutions may make sense. This makes the most sense if you have a child that’s going to go to a state institution. But if you need to put a lot of money away and you need to plan for a private school education, generally the 529 plan is going to make more sense and provide you with some more tax savings.

There’s one more additional benefit. If you live in a high tax state like Illinois or Connecticut, many times the contribution that you make to that 529 plan not only is tax free when it’s taken out, but you get a state income tax deduction for making that contribution. Think about these things and if you have questions, you’re welcome to call us. I’m Cary Stamp, this has been a Principled Wealth Moment.

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