Momentum - Business to Business Online Magazine MOMENTUM SUMMER 2019 | Page 24
FINANCIAL FOCUS
ROY SALAS
Financial Advisor
Edward Jones
www.edwardjones.com
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 with- drawals 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 at 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
22
MOMENTUM
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.