Tips on College Education Savings

529 plans complete The world of 529 College Savings Plans is a complicated one, with many, many alternatives available, each with slight variations and differences. To simplify, there are three basic tax advantaged vehicles to help save for college: 529 plans, Coverdall Education Savings Accounts and Roth IRAs. You contribute to each of these in post-tax dollars and each allows your savings to grow free of Federal taxes on the gains. The Coverdall and Roth IRA’s both have both income limits on the contributors and relatively low limits on annual contribution amounts, while the 529 plans generally don’t have those restrictions.

President Obama has abandoned his plans to lobby the congres to get rid of 529 plans so it's time a reexamine the benefits of this middle class tax advantaged program.  A recent Forbes article, titled How to Save for College,”reports that each of these plans allows the funds to be used for college tuition and fees, and some also permit the funds to go towards books and room and board expenses. In addition, the Coverdall accounts allow you to use the funds to pay for K-12 schooling. 529 plans have the fewest restrictions and so the broadest appeal. 

Each state and DC have their own plans, and the plans may differ in terms of how your contributions are managed, the types of investments they offer, and the fees charged. Your contributions to 529 plans are with after-tax dollars, and 34 states and DC also offer a state income tax deduction for contributions to the plan. 

Regardless of the state, the 529 plans come in two basic types—savings plans and prepaid tuition. With a savings plan, you deposit funds, make investment decisions, and watch the funds (hopefully) grow. Later they can be withdrawn for qualified educational expenses when your student begins college. 

Prepaid tuition plans are offered by 12 states. These are similar to defined benefit plans, except it is for college rather than retirement. You pay in an amount today or over a certain period of time, and the plan guarantees payment for a certain number of years of college tuition. 

One prepaid plan not offered by a state is the Independent 529. This plan is offered by a group of 270 independent colleges and can be used to attend one of those schools. These prepaid plans lessen investment risk by giving you a tuition guarantee: regardless of investment performance or increases in tuition, the agreed-upon part of your student’s tuition will be there when your student’s ready. 

The article admits that it can be very complicated, but a college education is the best investment you can make in your student’s financial future. Speak to an experienced estate planning attorney to find out more. 

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning. 

Reference: Forbes (January 20, 2015) “How to Save for College”



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Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.