Wednesday, October 20, 2021

Ask the CFP



Darcie Guerin

“All men by nature desire knowledge.”

– Aristotle

5/29 is National College Savings Day

Question: I hear a lot about 529 Plans but I’m not really sure what they are. Could you explain what makes them special?

Answer: May 29th is more than the day before Memorial Day or the day when the Indy 500 is held, 5/29 is National College Savings Day. The term “529 Plan” refers to Section 529 of the Internal Revenue Code that deals with specialized college savings accounts. These plans may provide tax benefits to the contributor, owner, custodian and beneficiary.

The rising cost of higher education is fairly well known, yet most people aren’t sure what a 529 Plan is or how it relates to saving for higher education needs. There are many perks to 529 Plans, one of which is that they’re a tax-deferred way to save for higher education for yourself, a child or grandchild.

These plans typically have a small impact on financial aid eligibility. Because the assets belong to the account owner and not the beneficiary, they’re assessed at a smaller rate when determining aid. Also, there are no income or age restrictions on who can contribute.

Like almost everything else, college costs are increasing. The Department of Labor reported that between 2003 and 2013 the relative costs for clothing rose 5.6%, housing costs were up 22.8%, food and beverage expenses increased 31.2%, medical care soared by 43.1% and college tuition jumped 79.5% over that ten-year period.

A 2015 Sallie Mae (Student Loan Marketing Association) study found that 89% of parents believe college is an important investment in their child’s future. Not surprisingly, they find it challenging to save for college. This is why preparing early is crucial, but not at the expense of funding for your retirement. There are loans and grants for school, but there aren’t loans for retirement.

Some 529 Plan Benefits:

Funds may be used to cover tuition, books, room and board, and computer expenses.

Anyone can contribute and contributions grow in a tax-deferred environment.

State tax deductions are available in some states.

529 Plans may be opened for yourself or anyone else as they aren’t limited to relatives. The important point is that a 529 Plan isn’t a custodial or “kiddie” account. The owner/participant is always in control of the account. 529 Plans typically charge an enrollment fee, annual fee or both. Program descriptions detail additional fees that may apply. There are options to select investments according to the plan design.

With “accelerated gifting” (a larger up-front investment), five-year’s worth of gifts may be made at one time per beneficiary. This could significantly lower someone’s estate tax liability. Taking advantage of the annual gift tax exclusion amount (currently $14,000), an individual can contribute up to $70,000 (5 x $14,000), or $140,000 per couple, in a single year per beneficiary without gift tax consequences, provided that donor doesn’t gift any more to the same beneficiary over the next five years (IRS form 709 must be filed to elect the five-year accelerated gifting). If the donor doesn’t survive the five-year period, a prorated amount reverts back to the donor’s estate. Certain other conditions may apply.

Some 529 Plan Reminders: 

Maximum contribution limits are established by each state’s program rules and may change each year to reflect increasing education costs, and when reached (by either contribution or appreciation) no additional contributions are allowed.

Contributions may be made to an education savings account and a 529 savings plan for the same beneficiary for the same tax year, as well as to a state-specific 529 prepaid plan.

529 Plans typically charge an enrollment fee, annual fee or both. Program descriptions detail additional fees that may apply. There are options to select investments according to the plan design.

Investment changes are limited to twice per calendar year, including rebalancing.

Money withdrawn from a 529 Plan not used on eligible expenses will generally be subject to income tax and an additional 10% federal tax penalty on earnings. Exceptions may be made if the beneficiary receives scholarship money.

Because there are a variety of choices and important nuances to be aware of, it’s important to work with a knowledgeable and trusted advisor to help simplify the process; someone who understands your family’s needs and the unique characteristics of each plan.

These plans can be a great way to reduce tax impacts and benefit overall estate planning while helping to cover the growing cost of higher education expenses. In addition to giving gifts to those we love, we set up 529 Plans and give the gift that keeps on giving—education! Knowledge is power. Stay focused and plan accordingly.

Consider the investment objectives, risks, fees, and expenses associated with 529 Plans before investing. More information about specific 529 Plans is available in each issuer’s official statement, which should be read carefully before investing. Before investing, consider whether your state offers a 529 Plan that provides residents with favorable state tax benefits. There is the risk that investments may lose money or not perform well enough to cover college costs as anticipated. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Discuss any tax or legal matters with the appropriate professional. 

* An eligible education institution is any postsecondary educational institution such as a college, university or vocational school, including many schools abroad that are eligible to participate in a federal student aid program administrated by the U.S. Department of Education. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNERTM, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article is provided by Darcie Guerin, CFP®, Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. Call or email Darcie at 239-389-1041 or with questions or suggestions for future columns. Visit her website:

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