|
 College
Savings Plan | Philip
C. Henry
Philip C. Henry,
ChFC, CFS is the President of Henry Wealth Management, LLC, an
independent financial planning firm located at 1370 Washington
Pike, Bridgeville, PA. He offers Securities and
Investment-Advisory Services through a non-affiliated firm, NFP
Securities, Inc., a Broker/Dealer, Member FINRA/SIPC, and
Federally Registered Investment Advisor. He may be reached at
412-838-0200 or at Phil@HenryWealth.com. The firm’s website is
www.HenryWealth.com.
The
Triple Tax Break
The pain of paying for college can be reduced with a Section 529
plan.
As parents, we
entertain visions of our children one day posing for graduation
day photographs with their college diplomas in hand.
Unfortunately, the warm glow of that happy moment can be
tempered by the cold reality of paying for that diploma.
According to the College Board, by the time a child born today
is ready for college, four-year tuition will be $132,000 for a
public college and a whopping $300,000-plus for a private
school. The smart parent will start planning now.
While there are
many factors to consider when choosing the most beneficial way
to prepare for college expenses, here are three key provisions
that make 529 plans especially attractive:
1). Tax-Deductible
Contributions: For Pennsylvania residents, contributions made to
529 plans sponsored by any state may result in a PA state income
tax deduction. That means a Pennsylvania resident may invest in
a plan in, say, Rhode Island, and reduce his/her PA state income
taxes in the process. The upper limit on deductible
contributions as of 2007 for PA residents is $12,000 per parent,
per child, or $24,000 per married couple, per child. For
example, a $12,000 contribution could result in a tax-break of
$368 based on PA’s 3.07 percent state income tax rate.
Residents of other states may also enjoy similar tax benefits,
depending on their state laws.
2). Tax-Deferred
Growth: Investments in 529 plans accumulate without federal or
state taxation.
3). Tax-Free
Withdrawals: The best part of the triple tax break is that
withdrawals from 529 plans to cover eligible expenses are tax
free. Qualified educational expenses include payments made to or
reimbursements for tuition, room and board, books, fees,
supplies and equipment for eligible (accredited) post-secondary
educational institutions.
Beyond the triple
tax break, 529s offer other key benefits:
Participant
Control: The investor
maintains control over investment and withdrawal decisions. The
participant also retains the right to change beneficiaries from
one child to another, which could come in handy if the named
beneficiary obtains a scholarship (good), if grades do not match
expectations (bad), or if the student decides to forgo their
sophomore year in order to spend his college money on a trip to
the Islands to “find” himself or herself (very bad!).
Investment Options:
Investors may direct
their contributions into a wide variety of options, including
stocks, bonds, money market funds or combinations thereof. Most
529 plans also offer age-based investments, whereby allocations
are more aggressive for younger beneficiaries and automatically
become more conservative as the student gets closer to college
age.
Financial Aid: 529
plans are considered “parental-owned assets” rather
than “child-owned.” When attempting to obtain a financial
aid package from the college of your child's choice,
parental-owned assets are usually preferable to child-owned
assets. Even better are grandparent-owned accounts, which are
completely off the financial aid radar screen when a school
gauges your family’s assets for purposes of determining aid
eligibility.
Summary:
Section 529 plans
offer compelling tax and non-tax benefits to help meet the
financial costs of educating our children and grandchildren.
Certainly, there are expense factors to consider, which can vary
greatly, even among plans offered within the same state. There
is also the risk that investments may lose value or not perform
well enough to cover college costs as anticipated.
State-based
benefits are just one among many factors to consider when making
an investment decision. You should consult with your financial,
tax or other adviser, as well as the 529 provider of your choice
to learn more about how state-based benefits (or limitations)
would apply to your specific circumstances, including features,
benefits and limitations and expenses for that state's 529
college savings plan. Ask for a prospectus. You may also find
www.collegesavings.org to be a helpful resource. Now envision
your child posing with college diploma in hand and imagine
yourself smiling too, enjoying that special moment and knowing
that your foresight to invest in a 529 plan years before has
minimized, or maybe even eliminated, any lingering debt!
The opinions
expressed in this commentary are those of the author and may not
necessarily reflect those held by NFP Securities, Inc. This is
for general information only and is not intended to provide
specific investment advice or recommendation. NFP Securities,
Inc. does not provide legal or tax advice. Clients should
consult with their own legal and tax advisors.
|
Game
Night Traditions
