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529 Plan 101

| May 03, 2022

Many parents today suffer from sticker shock when they learn what it costs to send their children to college. While the cost of college can be a hard pill to swallow, it’s never too early to get familiar with a 529 college savings plan. Here’s what you need to know:

  • Also known as a “qualified tuition program,” a 529 plan allows you to save for higher education expenses for a designated beneficiary.
  • Anyone—whether they’re a family member or friend—can establish a 529 plan for a beneficiary.
  • A 529 plan is provided by a state, an agency of the state, or by an educational institution itself.
  • Money invested in the plan accumulates on a tax-deferred basis. Distributions used for higher education expenses are tax and penalty-free as long as the funds are used for approved education expenses. 

If you’re considering a trust as a way for your child to pay for college instead, here’s what to know:

  • If your child will be applying for aid, trust funds can be counted in the financial aid process as an asset of the child. This could affect your child’s financial aid eligibility.
  • If the trust was restricted solely to withdrawing just the principal for the beneficiary, it may alleviate some financial aid restrictions.

If you’re interested in starting a 529 college savings plan for your children, call today to discuss savings and investment strategies, and to review the appropriate eligibility requirements.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.