College Savings Plan

| October 21, 2016
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College Savings Plan

The 411 on 529 Plans & Prepaid Tuition Plans for College Costs

Jayne Di Vincenzo AIF®, CEP ®, President, Lions Bridge Financial Advisors

College savings plan options can be confusing  and in this column I will cover two popular and often misunderstood options:   the 529 College Savings Plan and the Prepaid Tuition Plan.

529 College Savings Plans.  Most every state offers an “endorsed” plan.   Virginia 529 Plans are available through financial advisors and contributions may be state income tax deductible.  529 funds can be used for tuition, books, equipment, fees, room and board at a wide variety of qualifying institutions :  in or out-of-state private or public colleges, graduate and professional schools, technical and trade schools, and even accredited foreign universities. 

The beneficiary can be changed to someone related to that beneficiary if the initial beneficiary does not use the funds.  Account owners choose from several investments with different objectives including ones that become more conservative as the beneficiary nears college entry.   A registered financial advisor can help guide investment choices.

Money grows tax-free and is withdrawn federally tax-free for qualified expenses.   Flexible in that you can request distributions be paid directly to you or to the institution.  A popular plus of 529’s is that the account owner, often a parent or grandparent, maintains control of the funds when the minor reaches age of majority.  Tax treatment by state may vary, so consult w/a tax advisor before investing.

Prepaid Tuition Plan.  Allows the student to attend a public college or university in the state where the plan is established and most only cover tuition, leaving out room, board, books, meal plans and other costs.  Prepaid plans often require a large lump sum or monthly payments over a period of time to build the “bucket” of funds available for your student’s future tuition.  State-sponsored plans assume market and inflation cost risks in exchange for your upfront payments.  Should you delay establishing an account early, the cost grows substantially and there are typically enrollment dates and deadlines to be aware of.   If a student opts to attend out-of-state or choose a private school the returns on your funds are meager—typically savings rates, which have been less than one percent for several years.

See a financial advisor early when planning for college costs there are several other benefits and details that you should consider before investing. is also a helpful resource.

Jayne Di Vincenzo serves families and businesses throughout Hampton Roads and in 25 states. Securities & advisory services offered through LPL Financial, A Registered Investment Advisor (RIA). Member FINRA/SIPC. 757-599-9111.


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