529 Plans in 1..2..3

When looking for the most efficient way to save for higher education costs, the 529 plan should be your first stop.

“Education is the most powerful weapon which you can use to change the world.”

-Nelson Mandela


No one can argue the merits and importance of a good education.

Pointing out that college is expensive falls somewhere between common sense and obvious.   Proper and prudent planning for college costs can provide you the ability to help reduce the strain on your financial resources.  One of the most efficient methods to accomplish this is through a 529 plan.

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996.

529 plans allow you to save dollars today that will grow tax deferred for use on higher education costs.  If used for qualified expenses, the funds (including earnings) can be withdrawn tax free.  You can invest in any states 529 plan, but if you use your own states, you may be able to receive a state income tax deduction for your investment as well.  Connecticut allows for such deductions when contributing to their plan.  I call it the holy trinity of tax efficient investing.

Some advantages to 529 plans

  • Starting early pays off- the earlier you begin, the better
  • Anyone can contribute to it- Mom & Dad, Grandma & Grandpa, Aunt Ida.
  • 529 plans are assets of the owners- This means that when calculating financial aid when it’s time to apply to college, it’s not the students asset. (That’s good)
  • The Holy Trinity of tax advantages, as mentioned above
  • Tuition isn’t the only qualified expense- books, supplies, and room and board are too!
  • They are easy to set up and have limited reporting- no 1099 until the year you take withdrawals
  • If the chosen beneficiary doesn’t need the funds, they can be used for another family member


There are few, if any, strategies that will be more efficient in saving for college than a 529 plan.  If you have children or family members, starting early pays off.  Even small amounts, saved on a regular basis, can add up over time.   And don’t feel that you missed the boat because your children are a bit older, now is always a better time than never.



Average Cost of College – Four Years

                                           2011             2021              2031

Public 4-Year, In-State:        $78,875      $128,480      $209,280

Private 4 Year:                    $161,199      $262,576      $427,708


(Source: Peterson’s Undergraduate Database, 2012. Based on average total charges for tuition, plus room and board for one year (2011-2012) Assumes 5% annual increases)




Noah is a Certified Financial Planner ™ and writes on Patch for the promotion of financial literacy and awareness -- a topic in which he believes an informational void exists.  He makes himself available by appointment, telephone, or email to all readers and can be reached at 203-204-6226 or noah@myblueprint.co

Noah Schwartz is a Registered Representative and Investment Advisor Representative of and offers securities and advisory services through WRP Investments, Inc., member FINRA & SIPC.  Blueprint Financial Strategies is not affiliated with WRP Investments, Inc.  Securities and advisory services are supervised by WRP Investments, Inc. at 4407 Belmont Avenue, Youngstown, OH 44505 (330) 759-2023.

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Noah Darrow Schwartz CFP November 12, 2012 at 02:27 PM
Betsy, Thanks for your comments. Many families set up 529's in the name of the Grandparents to avoid being an asset of the child OR the parents for initial financial aid eligibility (although it could have an impact in future years). As your situation shows, other circumstances sometimes come into play. Since owners do have the ability to access 529 assets, the assets could be included as countable assets for Medicaid eligibility. In these cases, I'd always suggest speaking with an attorney familiar with medicaid and look back provisions.
Betsy Nolan November 12, 2012 at 02:43 PM
Thanks Noah. We have talked to an attorney and she was somehow under the impression that we could just 'change ownership'. Not so according to the investment manager. Cashing out and reopening under our names is a possibility but then we would incur the 10% penalty and be subject to gift taxes on reinvestment. CT offers no advantages to moving the funds which are currently in MA. The state, interestingly, says not one word either way about 529s in their asset test. My feeling is that if 'look backs', on these supposedly dedicated funds, become common and detrimental, they would discourage public investment. Like, Joe, I believe that since these funds are politically favored across the board and essentially marketed by the state, it is in their interest to keep them attractive. We will see............
John Sini November 12, 2012 at 03:15 PM
Those that work in New York State and pay NYS income tax may also want to look at the NY sponsored 529 plans that are managed by Vanguard
Jim Coley November 13, 2012 at 11:07 AM
Check with your tax advisor but for NY State you can also get a deduction on state taxes for contributions, or at least you used to be able to two decades ago.
Noah Darrow Schwartz CFP November 13, 2012 at 03:15 PM
Thanks Jim, I believe you are correct, but to your point, checking with your tax advisor first on your own particular situation would be most the most prudent first step.


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