6 reasons to invest in a 529 plan today
Are you wondering whether it's a good time to open up a college 529 savings account? One of the nation's foremost 529 plan experts says the answer is a resounding Y-E-S.
Joseph Hurley, the founder of SavingforCollege.com, says there are a number of timely reasons why families shouldn't dawdle in opening a 529 plan. Here are six great reasons to consider acting now.
Six reasons to invest in a 529 plan:
1. With tax rates slated to move higher when the Bush tax cuts expire in 2013, the 529 plan's tax benefits look even more attractive. As long as money remains inside a 529 account, it is not taxed and withdrawals made to pay for qualified college expenses are not subject to federal taxes.
2. The 529's tax benefits also look attractive with Congress kicking around the idea of imposing a millionaire's tax.
3. Despite budget problems, no state governments, which offer state income tax deductions for 529 contributions, have cancelled them. At least not yet. It makes sense for parents and grandparents to take advantage of these tax deductions, offered by dozens of states, while they still exist.
4. Hurley predicts that if economic conditions improve over time, as he says many expect, there is "very good chance" that investments made now in age-based portfolios will keep pace with future tuition increases at many schools.
5. With the price of public and private colleges continuing to rise well beyond inflation rates, a growing percentage of college cash will have to come from families themselves. A 529 plan is an ideal way to save because of the favorable financial aid treatment. Financial aid formulas treat money tucked inside 529 plans as parent assets, which are assessed at no more than 5.64 percent. In comparison, student assets are assessed at 20 percent.
6. With uncertainty about what will happen to estate taxes, wealthy grandparents may want to hedge their bets with 529 plans, which are a powerful estate-planning tool. Benevolent grandparents can give gifts via 529 plans without ceding control of the money, which is unique to 529 plans.