Benefits of College Savings Plans

Benefits of College Savings Plans

Core Facts

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The unfortunate truth is that a higher education comes at a price. And sometimes that price is comparably high to the education itself. Unless you’re well off or on a full scholarship, finding a way to afford the cost of tuition and materials, etc. often ends with taking out student loans. However, if you plan ahead with a college savings plan, there are many benefits. 

People who can benefit from college savings plans are not only just the student, but also parents and grandparents of young children, as well as casual investors. Or it could be anyone wanting to transfer wealth to another family member as part of an estate plan. 

The people most likely to benefit from these plans are the children themselves. Keeping your child out of a bottomless pit of student loans is probably the best thing you could do for their financial future. 

Student loan debt in the United States now exceeds $1.1 trillion, with 39% of Millennials reporting that being worried about money and their financial future is a weekly concern.

Higher investment accounts, known as 529 plans, have excellent tax advantages and offer savings for college as well as federal and state tax breaks on earnings. Although contributions are not deductible, earnings in a 529 plan grow federal tax free and will not be taxed when the money is taken out to pay for college. Other savings vehicles such as mutual funds will give up a portion of their earnings to annual income taxes and also get hit with a capital gains tax at withdrawal. This has been a huge incentive for Americans to save for college. The tax treatment was made permanent with the Pension Protection Act of 2006.

State taxes may be affected as well. Your own state may offer tax breaks too. In addition to the federal tax savings, over 30 states currently offer a full or partial tax deduction or credit for 529 plan contributions.

If you live in California and suffer a 13.3% income tax or any other high-tax state, then you’d benefit the most from having an income tax deduction. States differ in their limits for deductions on annual contributions and it would be advisable to check into your own state’s laws on this matter by consulting the state's treasury office for tax laws.

Another benefit is that these accounts are very low maintenance. A 529 plan is a very hands-off way to save for college. To enroll, simply visit the plan's website, or contact your financial advisor. Most plans allow you to "set it and forget it" with automatic deposits that link to your bank account or payroll deduction plans. The ongoing investment management of the account is handled by an outside investment company hired as the program manager or by the state treasurer's office.

529 plans offer packages of investments based on the age of the child, the beneficiary. Parents who don’t have much expertise or experience with investing can invest in these plans which get progressively more conservative as the child reaches college age.

Grandparents who want to contribute money to their grandchildren’s future but don't want to give up control of the funds, have the option to open a 529 plan in their own names with the grandchild listed as the beneficiary.



529 Plans are offered by prospectus only. Investors should request a prospectus from the issuer or sponsor before investing. Read the prospectus carefully and consider the investment objectives, risks, charges, expenses and other information before investing.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. 

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC


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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website:

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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