What’s Special About 5/29?

A&I Financial Services > Periscope Newsletter > What’s Special About 5/29?

This Memorial Day week, we’re going to have a little fun. Why this date? It’s 5/29, or five twenty-nine … so let’s learn about Section 529 College Savings Plans! We encourage you to re-consider what you may or may not know about these investment accounts. So, here we go – your fact-filled list of 29 surprising reasons to use a 529 college savings plan: and nbsp;

  • Paying for college is “More important than extra-long twin sheets, shower caddies, and quarters for the laundry machines!” says AIFS advisor Cameron Morgan.

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  • Money in these accounts can be used to pay for almost any post-secondary school, almost anywhere. You can use money saved in 529 College Savings Plans IN OTHER STATES and even in other countries!

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  • These savings are available to pay for high-school tuition (but are not state-tax deductible in Colorado if used for grades K-12).

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  • Contributions are Colorado state income tax-deductible! If you’re a Colorado resident planning to pay for college for yourself or a loved one, your contribution is a Colorado state income tax deduction! Note: the Colorado legislature has not authorized a state income tax deduction on contributions if the proceeds are used for other than post-secondary education. (1)

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  • Any growth on your contributions is tax free, and you can make tax-free withdrawals if the money is used for qualified educational expenses (more later).

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  • You can “Superfund” a 529 plan. You may contribute more than one year’s worth of the IRS gifting limits, and then double that if the givers are married. Pow! The 529 plan is quickly supercharged with up to five years’ worth of gifts, times two.

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  • Plays well with scholarships! If your beneficiary gets a merit-, need-, or athletic scholarship, then no problem. You can pull out the same amount from the Section 529 plan penalty- and tax-free. Income taxes are owed on the growth.

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  • The beneficiary does not have to be a child. You could fund your own, your mom’s (or grandmother’s) tuition bills.

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  • The plans offer a diverse variety of investments! Cash, bonds, equities and more are available to invest inside a 529 college savings plan; there’s no need to compromise.

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  • If you have a lot of bills, a Section 529 plan can help you even more! Not only tuition, but also room, board, computers, textbooks, rent off-campus … expand your thinking when you’re wondering about ‘qualified educational expenses.’ But don’t go crazy…

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  • Qualified expenses do not include: cellphones, parking, spiritwear, late-night pizza, entertainment, travel, sports, or extracurriculars.

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  • Keeping money in the family is always an option – if your beneficiary doesn’t choose to go to college, it’s no problem. Just change the beneficiary. You’re the owner of the account, not the student!

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  • It’s rare, but occasionally, a family suffers the death of a 529 beneficiary. Since you are the owner, you retain control of the money and it can be used for other beneficiaries.

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  • Speaking of the awful stuff…https://www.markzinder.com/blog/resources/advance-directives/ Every adult has their privacy protected by law (and denied to the parent). Unless you have legal documentation, you’ve got no way to help your student with health decisions, even when you need to. Solve this with an advanced directive/POA/HIPAA.

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  • Section 529 plans can be spent at many trade schools, community colleges, graduate schools, INTERNATIONAL schools, seminaries, culinary, cosmetology and technical schools. How about computer programming? You bet! For a complete list, visit https://www.savingforcollege.com/eligible_institutions/.

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  • Rollovers. Although the rules get complicated, your financial planners at AIFS know these rules and can help you navigate the “how to rename your beneficiaries” decision.

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  • Contributions make great gifts! No batteries, they always fit, and they make your eyes sparkle. These gifts are especially powerful for the very young because….

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  • The earlier you start, the better! Compounding interest rates on a diverse set of investments may yield large amounts of money for college expenses.

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  • Savings bonds may be rolled into Section 529 plans. What’s that? You bought savings bonds as a gift to the kids? You may want to cash them out and roll them into a Section 529 college savings plan. Yeet! (The kids say this now.)

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  • Pre-paid tuition plans … are not the same thing as 529 plans! You don’t need to choose a school today. Besides, finding one of those old plans any more is tricky, tricky, tricky.

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  • One downside (which is actually a good side): you can only change your 529 investments once per year. Talk to your financial advisor, set the investments and revisit it a year later.

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  • Friendly for financial aid. The Section 529 plan is an asset of the giver—whether parent or grandparent—and a child (excuse me, college-bound young adult) cannot access the Section 529 unless you’ve made them the owner. Basically, no red Ferraris. Go to school, kid!

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  • Grandparents, consider releasing the 529 monies on the third year (or later) of the college-student’s journey, if the student is receiving need-based financial aid. Again, for details, ask your financial advisor here at AIFS.

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  • 529 plans are controlled by the parent/grandparent/giver, not the student. This is not a gift you lose control of, it’s something you control for the duration of the education (or longer if they don’t use it).

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  • Military academies are awesome. Soon, our family will tour the Air Force Academy with our hopeful applicant … if she is accepted, we’ll use her Section 529 funds for her brother instead!

Citations:

(1) Contributions (excluding rollovers) in a tax year are deductible from Colorado state income tax to the extent of Colorado taxable income for that same year, subject to recapture in subsequent years in which non-qualified withdrawals are made.

* Consult your CPA or visit IRS.gov for tax advice.

About the author

Karl Frank, Certified Financial Planner ®, MSF, MBA, MA, is the President of A&I Financial Services LLC, a local business that specializes in wealth management, insurance planning, and retirement planning. Karl cares for business owners and the businesses that care for them. Learn More about Karl.

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