October 23, 2018

Your Money Adviser: Free Tickets. Money. College Savings Plans Try to Stir Up Interest.

All states but Wyoming now offer some type of 529 plan, as does the District of Columbia. The plans allow families to invest in an account that grows tax-free. The money is also withdrawn tax free, as long as it is spent on eligible expenses like tuition, fees and other costs, including room and board, books and equipment. (A few plans, known as prepaid tuition plans, work a bit differently.) For additional details, a good resource is www.savingforcollege.com.

Rules for 529 plans were established by Congress in 1996, and the plans began growing more quickly after 2001, when withdrawals were made tax-free. Balances in the accounts have reached record levels, according to the latest data from the savings plans network. The number of accounts grew 3 percent in 2017, while total assets in the plans rose to $319 billion in 2017, a 16 percent increase over the prior year. The average account is now worth $24,000.

Yet the public’s awareness of the plans remains somewhat muted — hence, the annual spring publicity campaign.

A survey by the investment firm Edward Jones found that fewer than a third of Americans could correctly identify a 529 plan as an education savings tool, although more affluent people were more likely to get it right. The survey of 1,004 adults was done by landline and cellphone in April and has a margin of sampling error of plus or minus 3 percent. (Edward Jones offers “adviser sold” 529 plans, which include professional advice as well as extra sales fees or commissions. Most states offer plans that consumers can enroll in directly, without paying sales fees.)

James J. Burns, a financial planner on Long Island and an ambassador for the Certified Financial Planner Board of Standards, says some families have misconceptions about 529 plans. For instance, he said, they may worry about what will happen to their savings if their child doesn’t go to college. But the plans are flexible, he said. If a child chooses not to go to college, the money can also be used for vocational schools. Or, the money can be used for another child or relative. (If 529 funds are withdrawn for ineligible purposes, the earnings — but not the original contributions — are generally taxed as income, plus a 10 percent penalty.)

Article source: https://www.nytimes.com/2018/05/25/your-money/529-college-savings-plans.html?partner=rss&emc=rss

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