You’ve heard this before – If you’re a parent, you should consider using a qualified tuition savings plan or a prepayment tuition plan to save even more for college. But while most parents are familiar with 529 plans, the number of people who actually know how they work, and all of their benefits, are few.
The biggest benefit of a 529 plan is that any earnings your account has over the years are tax-free when you make a withdrawal to pay for qualified higher education expenses. But did you know that Kansas & Missouri taxpayers may now invest in ANY state-sponsored 529 plan & receive a State adjusted gross income deduction for their contributions? This means that Kansas and Missouri residents don’t need to invest only in the Kansas Learning Quest 529/Missouri MOST 529 plan to receive a deduction on their state income taxes. There are other plans available through other states that may have better investment choices and/or lower fees.
When you are ready to start a 529 plan for your child(ren), you should never “purchase” the plan from a stockbroker or financial advisor. These salespeople will receive commissions (typically 5.75%) on each contribution that you make to the plan, and the states will charge higher administrative fees since it is more expensive for them to work through advisors. Instead, you should purchase the plan directly from the state. Each state has a website that you can visit to complete the application, choose your investments, and fund the account. They also will have a phone number listed that you can call if you have any questions.
Did you know that 529 plans aren’t just for your kids’ college tuition? If you’ve ever thought about going back to school, even if it’s just to take a couple courses, you can save money inside of a 529 plan and receive the same tax benefits that you receive from saving for your kids’ education. All types of accredited higher education schools are allowed, including colleges, community colleges, and trade/career schools.
So what should you do if you’ve already opened a 529 account, but after reading this article, it has become apparent that you should enroll in a different plan? You can transfer your 529 account to another state’s plan. However, there are some states who will tax you on any earnings that you are transferring out, so you will want to check on that before making a change.
Two great sources for researching 529 plans are www.savingforcollege.com and www.collegesavings.org. If you have any additional questions regarding 529 plans, or would like to discuss your specific situation, please email (email@example.com) or call (913.402.6099) me to schedule an appointment.
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John P. Chladek, MBA, CFP® is the President of Chladek Wealth Management, LLC, a fee-only financial planning and investment management firm specializing in helping families and couples who are not yet retired realize their financial goals. For more information, visit https://www.chladekwealth.com.