529 College Savings Plan Options

Paying for a child’s or grandchild’s college education is an expensive proposition, even for families that have saved diligently in pursuit of their goal. The 529 plan offers a tax-advantaged investment vehicle that offers both college funding and estate planning benefits.1

Types of 529 College Savings Plans

There are two types of 529 plans:

  • Prepaid tuition plans that let you lock in tomorrow’s tuition at today’s prices. For example, if grandparents choose to buy shares worth a year of tuition at a state college, the shares will always be worth a year of tuition, no matter how much the cost of credit hours may increase when the grandchild attends college. Not all states offer Prepaid tuition plans.
  • College savings plans that let you choose from a menu of investments and offer more return potential, as well as risk.

Both types are generally sponsored by a state government and administered by one or more investment companies. Contributions are made on an after-tax basis, but withdrawals used for qualified undergraduate or graduate school expenses are federal income tax-free. Withdrawals for other purposes are subject to ordinary income taxes, a 10 percent federal penalty tax and possible state taxes. Eligibility to contribute is not limited by age or income, and total contribution limits often exceed $200,000.2

Estate Planning Potential

529 plans can support a long-term gifting strategy while providing significant control over assets that have been removed from a taxable estate. Tax rules permit individuals to give $14,000 to as many individuals as they choose each year without triggering the need to file a federal gift tax gift form.

Consult your Woodmen Financial Services Financial Representative,3 and an estate planning specialist or professional tax advisor to determine the best strategy on how a 529 plan may help you pay for college expenses while also complementing your estate planning goals.

Investors should carefully think about plan investment goals, risks, charges, and expenses before investing. Be sure to consider whether your or your beneficiary’s home state offers benefits that are only available for residents who participate in its qualified tuition program. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan.

 

1. The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions or other factors.

2. By investing in a 529 plan outside of your state of residence, you may lose any state tax benefits. Non qualified withdrawals are subject to federal and state income tax and a 10% penalty. 529 plans are subject to enrollment, maintenance, management fees and expenses. Contact your tax advisor for details.

3. Woodmen of the World, its employees and Representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

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