This is the third installment in our “Buyer Beware” series, and we are going to talk about 529 plans. A 529 plan is a tax-advantaged investment vehicle in the United States designed to encourage saving for the future higher-education expenses of a designated beneficiary. Once you make the contributions to the account, like a Roth IRA, all the growth is tax-free if its funds are used for the beneficiary’s education. And it’s highly flexible when it comes to what is considered “education”: tuition, fees, off-campus housing, food, books, computers, etc. Tim also read off the l-o-n-g list of “family members” that you can transfer from one beneficiary to another. Of course, like any financial product, it’s not without its cons. If your beneficiary (mostly your kids) decides not to go to school, and you have no one else to transfer it to, you will need to pay income taxes and a 10% penalty to take the money out and use it somewhere else. Dan and Tim talked about how a 529 plan would affect your applying for financial aid, and what the logistics are for using the account. Overall, a 529 plan is a great tax-advantaged vehicle for education. If you have kids, we courage you to talk to your advisor and/or CPA about it!
