In Graphics: How Does a 529 Plan Work?

HOW DOES A529 PLAN WORK? One of the best ways parents can prepare for covering at least part of their children's education costs is to start saving well in advance. The most popular investment vehicle these days, specifically designed for education savings, is a 529 plan. Named after Section 529 of the Internal Revenue Code, a 529 Plan allows your savings to grow tax-free. 529 Plan: Typically a 529 is set up by a primary benefactor. investments designed to help families pay for future education expenses. You can use a 529 plan with certain higher education institutions: Each 529 has a single beneficiary, but it can be transferred to another beneficiary, such as sibling or relative. BENEFICIARY on ated Beneficiary: the student on whose behalf the plan is established. SOME COMMUNITY COLLEGES. VOCATIONAL AND TRADE SCHOOLS PUBLIC AND PRIVATE GRADUATE UNDERGRADUATE There are typically two types of 529 plans, Prepaid and Savings. PREPAID SAVINGS Pre-Paid Plan: Savings Plan: invest contributions to pay for college at a later point. Pre-pay all or part of in-state education, can be converted for private or out-of-state schools. Inflation: a rise in the general level of prices or goods in an economy. Mutual Funds: pools money from many investors and invests in securities Purchase tuition credits at today's Accumulate funds in a tax-advantaged rate to be used in the future. way for future tuition costs. Based on tuition inflation. Based on market performance. Administered by States and Higher Education Institutions Administered by States, assets usually managed by asset-managěment firms Guaranteed to increase in value at the same time as tuition rates. No lock on tuition rates and no guarantee AM I ELIGIBLE? CONTRIBUTION Anyone can establish and contribute to a 529 plan on behalf of a designated beneficiary. This means that relatives, family, friends and even the designated beneficiary can establish the 529 plan for him- or herself. But the rules do vary. Regular contributions to 529 plans must be made in cash. PRE-PAID PLANS WILL OFTEN HAVE LOWER CONTRIBUTION LIMITS E.g. The account owner or beneficiary must be a Louisiana resident at the time of program enrollment. START Saving Program LOUISIANA TUITION SAVINGS PROGRAM Contributions can not exceed the amount NEW YORK necessary to provide for the qualified education of the beneficiary. LOUISIANA The average balance in a 529 plan account: $13,425 Almost all states and the District of Columbia allow both residents and non-residents to contribute to their plans. In some cases, however, non-residents have to go through an advisor and pay commission. ANYONE CAN CONTRIBUTE TO A 529 PLAN WHAT CAN THE MONEY BE USED FOR? Qualified withdrawals from 529 plans are tax-exempt. ANY RESIDUAL AMOUNT CAN ALSO BE ROLLED OVER TO ANY OF THE FOLLOWING: Money from a 529 plan can not be used for: Money from a 529 plan can be used for: SPOUSE IMMEDIATE FAMILY SON/DAUGHTER STEPSON/DAUGHTER Student loans and interest Books and Supplies Room and Board 1ST COUSIN OWNER OF HOME BENEFACTOR LIVES IN Tuition and Fees Equipment A distribution from a 529 plan that is not used for qualified educational expenses may be subjected to income tax and an additional 10% early-distribution penalty. I 529 PLAN FEES Program Management: Paid to the investment manager for managing your money. Enrollment Fee: Account Maintenance: Charged with your initial investment. A fee charged for administrative expenses. Investing in a 529 plan isn't free. All plans charge various fees on a monthly or annual basis. Here are the four most common ones: Total Asset-Based Expense Ratio: The total of the management fees and the expense of the underlying investments, represented as a percentage of your assets in the 529 plan. 3 THE BEST 529 PLANS 1 USAA COLLEGE SAVINGS PLAN 2 PACIFIC LIFE FUNDS COLLEGE SAVINGS PLAN 3 VIRGINIA EDUCATION SAVİNGS TRUST T. ROWE PRICE COLLEGE SAVING PLAN 1-YEAR PERFORMANCE NEVADA MONTANA VIRGINIA ALASKA TYPE UPROMISE INVESTMENT INC. PACIFIC LIFE FUNDS VIRGINIA COLLEGE SAVINGS PLAN BOARD AND ITS EXECUTIVE DIRECTOR T. ROWE PRICE ASSOCIATES INC. PROGRAM MANAGER FEES YES YES YES YES RESIDENCY REQUIREMENT NONE YES NONE NONE MAXIMUM CONTRIBUTION $370,000 $335,000 $350,000 $320.000 MINIMUM CONTRIBUTION INITIAL: $250 INITIAL: $250 INITIAL: $500 INITIAL: $25 2 SCHWAB COLLEGE SAVINGS PLAN 3 UTAH EDUCATIONAL SAVINGS PLAN MICHIGAN EDUCATION 4 SAVINGS PROGRAM 1 USAA COLLEGE SAVINGS PLAN 3-YEAR PERFORMANCE NEVADA KANSAS UTAH MICHIGAN TYPE TIAA-CREF TUITION FINANCING, INC. UPROMISE INVESTMENT INC. AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. UTAH HIGHER EDUCATION ASSISTANCE AUTHORITY PROGRAM MANAGER FEES YES YES YES YES RESIDENCY REQUIREMENT NONE NONE NONE NONE MAXIMUM CONTRIBUTION $370,000 $300,000 $368,000 $235,000 MINIMUM CONTRIBUTION INITIAL: $250 INITIAL: $1,000 NONE $25 OR $15 PER PAY PERIOD PACIFIC LIFE FUNDS COLLEGE SAVINGS PLAN SCHWAB COLLEGE SAVINGS PLAN 3 USAA COLLEGE SAVINGS PLAN MICHIGAN EDUCATION SAVINGS PROGRAM 5-YEAR PERFORMANCE MONTANA KANSAS NEVADA MICHIGAN ΤΥΡE PACIFIC LIFE FUNDS AMERICAN CENTURY INVESTMENT MANAGEMENT, INC. TIAA-CREF TUITION FINANCING, INC. PROGRAM MANAGER UPROMISE INVESTMENT INC. FEES YES YES YES YES RESIDENCY REQUIREMENT MAXIMUM CONTRIBUTION YES NONE NONE NONE $335,000 $300,000 $370,000 $235,000 MINIMUM CONTRIBUTION INITIAL: $500 INITIAL: $1.000 INITIAL: $250 $25 OR $15 PER PAY PERIOD SOURCES: IRS.GOV, SAVINGFORCOLLEGE.COM, INVESTOPEDIA.COM, CSPN COLLEGE SAVINGS REPORT mint .com