What You Need to Know About 529 Plans
By TRG Advisors on August 5, 2024
A recent study by the College Board found the average annual cost of tuition and fees at a four-year private institution was $39,400 (2022-23)1. With education expenses steadily increasing over the past 302 years and total U.S. student loan debt soaring to 1.757trillion3, saving for college is as sensible as it is critical.
We recommend using a 529 Plan to help maximize your education savings.
What is a 529 Plan?
A 529 Plan is an education savings plan offered by a state or educational institution to help families set aside funds for future school costs.
What are key benefits of a 529 Plan?
In most cases, 529 plans offer significant tax and investment benefits. While these plans are typically used for college savings, families in some states may use up to $10,000 per student each year for elementary and secondary education tuition expenses.4 (Please consult with your tax advisor prior to making withdrawals or distributions from a 529 plan for K-12 expenses.)
- TAX-FREE WITHDRAWALS
If the funds are used for qualified education expenses5, the withdrawals are exempt from state and federal taxes. - STATE TAX BENEFITS
Many states offer either a deduction or credit for contributions made to a 529 plan. - TAX-DEFERRED GROWTH
Earnings grow tax-deferred from federal and state taxes. - GIFT-TAX BENEFITS
In 2025, contributions qualify for the $19,000 annual gift exclusion, even if you are the owner (not the beneficiary) of the plan. Additionally, you can front-end load a 529 plan for up to five years (max. $95,000 per person, per beneficiary) to help reduce your personal estate.6
Investment Choices:
- Investment Management: Most 529 plan investments are mutual funds managed by large, well- established fund companies.
- Approach: You can choose an age-based option or static option:
- Age-based – This portfolio will automatically adjust the stock/bond mix according to the age of the beneficiary. Because stocks, as an asset class, are considered to have higher returns and higher risk, the longer the time horizon, the more stocks you can hold. For example, funds for a younger child will likely have a higher stock allocation because there is a greater length of time before the funds are needed. As the child nears college age and the time horizon shrinks, funds are allocated to less risky investments, such as bonds.
- Static choice – You choose one or more investments offered within the 529 plan and hold them. It becomes your choice when to become more or less aggressive.
Contribution Eligibility:
- Unlike other education savings plans, your income does not restrict you from making contributions to a 529 plan.
- While there is a contribution limit for a 529 plan account, it’s high. The limits are state-specific, but range from $235,000 to $500,000+ in aggregate contributions.
To Learn More:
Check out our podcast where Jay Steinacher and Sara Clegg, CFP® from Union Bank & Trust talk about all things 529 plans – listen to the episode here: https://bit.ly/3aqyIAF
- “Trends in College Pricing 2022,” Trends in Higher Education Series. The College Board, 2022. Page 3. https://research.collegeboard. org/media/pdf/trends-in-college-pricing-student-aid-2022.pdf
- “Trends in College Pricing 2022,” page 3.
- “Student Loan Debt Statistics.” EducationData.org. Accessed May 16, 2023. https://educationdata.org/student-loan-debt- statistics#:~:text=43.8%20million%20borrowers%20have%20federal,financial%20quarter%20(2021%20Q4)
- “529 Plans Can Be Used for Private Elementary and High School Tuition.” SavingforCollege.com. Accessed May 16, 2023. https://www. savingforcollege.com/article/529-savings-plans-and-private-school-tuition
- “Qualified Expenses for a 529 Plan.” TheCollegeInvestor.com. Accessed May 16, 2023. https://thecollegeinvestor.com/18450/ qualified-expenses-529-plan/
- “How Grandparents Can Help Fund Education.” Fidelity.com. Accessed May 16, 2023. https://www.fidelity.com/learning-center/ personal-finance/college-planning/grandparents-can-help-fund-college