529 College Savings Plans are investment accounts designed to help those with higher education goals set aside money for college. These accounts are named after Section 529 of the Internal Revenue Code, which created these types of savings plans in 1996.
College savings plans typically cover all Qualified Education Expenses at eligible institutions of learning. Qualified education expenses would include: tuition, mandatory fees, books and supplies, equipment required by school, room and board, computers (including tablets), and peripherals such as printers and education software.
Eligible Educational Institutions would include accredited: colleges / community colleges, universities, graduate schools, vocational schools / trade schools, and other post-secondary institutions eligible to participate in a student aid program administered by the U.S. Department of Education. Some overseas institutions of learning may also be eligible.
Any money that is invested within 529 College Savings Plans is effectively earmarked for educational expenses. Contributions into 529 College Savings Plans may grow tax-deferred and may be withdrawn tax-free provided the money is used for qualified education expenses.
Contributions into 529 College Savings Plans are not tax deductible at the Federal level; however, it should also be noted that some States do allow individuals to deduct the full or a partial amount of their 529 contributions from their State income taxes.
At C.M. Carrillo Financial Advising, we believe in taking a well balanced approach to the overall financial planning process.Consequently, we also advocate taking a well balanced approach to college planning.
In light of this, many of our clients choose to utilize both savings vehicles as well as investment vehicles in order to adequately prepare for college. It should be noted that each financial vehicle has its own: tax treatment, risk profile, and ramifications on the Free Application for Federal Student Aid, which is commonly referred to as "The FAFSA."
The assets and income of a family, for both the student as well as the parents, can have substantial ramifications when it comes to how much financial aid a particular student may be eligible to receive. It is important to be aware of the fact that not all assets are treated equally when making the calculations for financial aid.
529 College Savings Plans are technically classified as Investment Vehicles despite their given name. This is because they expose the account holder to the risks that exist within the financial markets. All Investment Vehicles by definition have risk; however, the only risks that Savings Vehicles expose the account holder to have no direct ties to the financial markets, and generally speaking, those risks are quite minimal.
Risk is a key differentiator between all financial vehicles.
Quick Read: Financial Aid for Students 101
Did you know that beginning in 2018 some very exciting changes went into effect that specifically pertain to 529 College Savings Plans?
The Tax Cuts and Jobs Act, which was signed into law in December of 2017, expanded 529 College Savings Plan benefits by allowing families to make qualified withdrawals for K-12 private school expenses. For residents of the State of Missouri, contributions to Missouri AND non-Missouri 529 plans of up to $8,000 per year by an individual, and up to $16,000 per year by a married couple filing jointly, are deductible in computing Missouri taxable income. Only contributions made by the account owner are deductible, except for spouses filing a joint return. Rollover contributions are not deductible. For residents of the State of Missouri, The State conforms to The Federal Definition of Qualified Education Expenses, which includes expenses for higher education, as well as up to $10,000 per year in tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.
Bonus Tip #1: The State Tax DeductionThe vast majority of States only allow a State Tax Deduction for contributions to the In-State 529 College Savings Plan; however, in seven States – Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana, Pennsylvania – taxpayers can claim a State Tax Deduction for contributions to any State's 529 College Savings Plan. These are known as Tax Parity Deductions, or simply Tax Parity.
Bonus Tip #2: The SECURE Act The Setting Every Community Up for Retirement Enhancement Act, which is otherwise known as The SECURE Act, was signed into law on December 20. 2019. Within The Secure Act, there are special provisions that specifically pertain to students.
Below we have listed some of the financial vehicles and resources that our clients have found particularly helpfulas they have navigated the college planning process.
Franklin Templeton Investments 529 College Savings Plans
There are a number of variables that should be taken into consideration when evaluating and comparing different 529 College Savings Plans. One particular plan that has become attractive to many is the State of New Jersey's 529 College Savings Plan, which is Managed and Distributed by Franklin Templeton.
One reason many have decided to take advantage of this particular plan is because Franklin Templeton identified a very specific challenge that many families face and then subsequently created a highly innovative solution to help people overcome this particular challenge.
So what is the challenge? Well unfortunately in our society today, College Planning is a component of the overall financial planning process that many people tend to put off until the student is already in high school. Therefore, in short, the challenge is a Lack of Time, and it is often the result of Procrastination.
Families that are in this situation are commonly classified by financial professionals and financial institutions as "Late Stage Planners." Four school-years may seem like a long time, but in the grand scheme of things, it really isn't. Those four years can go by in the blink of an eye. So for Late Stage Planners, one of the primary challenges that they face is essentially a lack of time to adequately plan and prepare for the student's projected college start date.
And as it so happens, time is an issue for two reasons. The first is the amount of time there is to make contributions into the account. The second is the amount of time the investments within the selected portfolio have to appreciate in value. And of course, there is no guarantee that they will. It is never possible to guarantee market performance or the performance of one's investment portfolio.
So this is the challenge that Franklin Templeton identified. And what did they do about it? Well, they essentially created something called SPRYNG. And what is SPRYNG? SPRYNG is a special crowdfunding tool that Franklin Templeton effectively built into their 529 College Savings Plan.
And why is this a big deal? It is a big deal because it essentially transforms the 529 College Savings Plan into a very powerful mechanism that is capable of helping people overcome a shortage of time to adequately plan and prepare for the student's projected college start date by making the funding of the account a community affair.
It should be noted that even without a built-in crowdfunding tool, others would still have the ability to contribute to your 529 College Savings Plan. Such contributions are deemed to be gifts and generous people make gifts everyday. However, the true power behind SPRYNG is how it makes it exceptionally easy for others to give a gift. And that is the key! It's easy, it's convenient, and it's secure. And sometimes, that can make all the difference in the world.
Special Note: Advisor Sold Plans vs. Direct Sold Plans
Within the world of 529 College Savings Plans, there are two categories. There are the Advisor Sold Plans, which are sold by licensed financial industry professionals who are either compensated via a commission or a fee. And then there are the Direct Sold Plans, which individuals can open up themselves directly through the plan manager.
At C.M. Carrillo Financial Advising, we no longer sell Advisor Sold 529 College Savings Plans; however, we do provide our clients guidance on 529 College Savings Plans when they ask for it. When providing guidance on 529 College Savings Plans, C.M. Carrillo Financial Advising does not charge clients any commissions or fees.
Making College Funding A Community Affair
Getting Started With Franklin Templeton
Opportunities To Ask Others To Give A Gift
Celebrations For Age & Academic Milestones
The Education Supplement Concept outlines the way in which Whole Life Insurance Policies can work in conjunction with 529 College Savings Plans.
In 1991, the College Savings Plans Network (CSPN) was formed as an affiliate to the National Association of State Treasurers (NAST).
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Christopher Carrillo is a Brokerage Insurance Agent with MassMutual Financial Group.
MassMutual Financial Group is a marketing designation (or fleet name) for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliates and sales representatives.
Christopher Carrillo offers insurance products through MassMutual as well as other insurance carriers.
Investment Advisory Services offered through Prosperity Wealth Management, Inc., a Registered Investment Advisor. C.M. Carrillo Financial Advising and Prosperity Wealth Management, Inc. are separate entities.
All entities listed are separate and unrelated to C.M. Carrillo Financial Advising.
All entities listed are separate and unrelated to Prosperity Wealth Management, Inc.
All entities listed are separate and unrelated to MassMutual.
Prosperity Wealth Management, Inc. and C.M. Carrillo Financial Advising do not receive any compensation when individuals take an assessment offered by Kolbe Corp.
Investors should consider their investment objectives, risks, charges and expenses associated with municipal fund securities before investing. All investments involve some form of risk such as share price and investment return which may fluctuate in price or yield and you may receive more or less than your original investment upon redemption. Before investing, the investor should consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. This information is found in the issuer's official statement and should be read carefully before investing.
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