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Matt

By Matthew Coffey, Financial Advisor

529’s can be a great way to save for a child’s education. 529 plans allow for all gains be to tax free assuming the funds are used for qualified education expenses. The government’s definition here is pretty broad and allows for tuition, books, and room and board among other expenses. If the beneficiary decides not to attend college, the funds can be transferred to another child. The most important thing to remember if you are considering a 529 plan is to start early. Consider the example below:

Assume the donor contributes $200 monthly and receives a 6% rate of return:
*Child A begins at 10 years old – He will have an account balance of $25,179 and a tax savings of about $1200 (assuming a 20% capital gains tax rate).*
*Child B begins at 2 Years old – He will have an account balance of $65,311 and a tax savings of about $5400 (assuming a 20% capital gains tax rate).*

Not only will starting early allow more time for investments to potentially grow, increasing the balance and tax savings, it may also allow for a more aggressive investment approach which could boost return. Keep in mind that aggressive investments assume a higher level of risk and may not be appropriate for all investors.

The advisors at All Seasons Wealth Strategies administers many 529 plans for our clients and can help you open a plan and select an investment strategy.

*This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Future performance cannot be guaranteed and investment yields will fluctuate with market conditions.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 college savings plans before investing. More information about 529 college savings plans is available in the issuer’s official statement, and should be read carefully before investing.

 

 

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