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TAKE A CLOSER LOOK AT
MYTHS SURROUNDING
529 PLANS
I
f you want to help pay for your children’s college
educations, you might want to consider contributing to
a 529 plan. With this plan, your earnings grow federally
tax-free, as long as the withdrawals are used for qualified
higher education expenses such as tuition and room and board.
Yet, you may have heard some things about 529 plans that are
keeping you from investing in one. However, these concerns
may be more myth than reality – so let’s take a look at a few of
them.
• “I need a lot of money to contribute to the plan.” This
myth has essentially no truth to it. Typically, only a modest
amount is required to open your 529 plan, and you can
generally transfer small sums to it from your checking or
savings account.
• “If my child doesn’t go to college, I lose out on the
money I’ve put in.” This myth runs counter to one of the
529 plan’s greatest benefits: flexibility. If you’ve named
one child (or grandchild) as a beneficiary of a 529 plan,
and that child or grandchild decides against pursuing
higher education, you can simply change the beneficiary
to another eligible family member. Furthermore, if none of
your intended beneficiaries will need the 529 plan, you can
name yourself the beneficiary and use the money to take
classes or receive some other type of qualified education
opportunity. In a worst-case scenario, in which the money
is never used for education, you will be taxed on the
earnings portion of the withdrawals – but had you never
contributed to a 529 plan, the funds would have been
taxed, anyway. (However, you might be subject to a 10%
penalty tax, in addition to regular income taxes, again on
the earnings portion of the withdrawals.)
• “I have to invest in my own state’s plan.” Not true. You’re
free to invest in the 529 plan of any state, no matter where
you live. But it could be advantageous for you to invest
in your own state’s plan, as you might receive some tax
breaks for state residents. (The tax issues for 529 plans can
be complex, so you’ll want to consult with your tax advisor
about your situation.) Investing in your own state’s plan
also might provide access to financial aid and scholarship
funds, along with possible protection from creditors.
• “A 529 plan will destroy my child’s chances for financial
aid.” While a 529 plan could affect your child’s financial
aid prospects, it might not doom them. And the benefits
of building significant assets in a 529 plan could outweigh
the potential loss of some needs-based financial aid.
Before investing in a 529 plan, you’ll want to explore it
thoroughly, as you would any investment. You can find details
about a 529 plan’s investment options, share classes, fees,
expenses, risks and other information in the plan’s program
description or offering statement, which you should read
carefully before making any purchasing decisions. But, in any
case, don’t let “myths” scare you off from what could be one of
your best college-savings vehicles.
This article was written by Edward Jones for use by your local Edward
Jones Financial Advisor.
Edward Jones, its financial advisors and employees cannot provide
tax or legal advice.
Matt Dudkowski, AAMS® | Financial Advisor | 1007 Mt Royal Blvd. Pittsburgh, PA 15223 | 412.487.3300
[email protected] | www.edwardjones.com | Member SIPC
Matt Dudkowski has been a financial advisor with Edward Jones since 2002, serving individual investors in
the Pittsburgh area from his Shaler Township office. In January of 2015, Dudkowski accepted an invitation
to become a limited partner with the firm.
Since joining Edward Jones, Dudkowski has obtained the professional designation of AAMS®. Prior to Edward
Jones, Dudkowski, as a CPA, worked at the H.J. Heinz Company, and at Ernst & Young LLP.
He currently serves on the board of directors for Keystone Wellness Programs, a local nonprofit organization.
A native of Butler County and a graduate of the University
of Notre Dame, Dudkowski resides in Gibsonia with his wife,
two sons and daughter.
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