These college savings plans are named after Section 529 of the Internal Revenue Code, a type of college savings account with a special tax structure. Here is how it works:
Fund the account with after-tax contributions: You can not take a federal tax deduction on those contributions.
Investment grows tax-deferred: You don't pay taxes on funds withdrawn from the account as long as they're used for what the government considers qualified education expenses, which include:
Room and board
Benefits of a 529 Plan
Federal Tax Savings
The post-tax investment grows tax-deferred, and no taxes due when used for qualified educational expenses. Penalties and taxes apply to any unqualified withdrawals.
State Tax Savings
While there's no federal tax deduction for investing in the plan, some states offer residents a state income tax deduction. This gives you an additional tax benefit and financial incentive to invest in the state's plan.
The account owner is the person who opened the account, and that person names the beneficiary. The owner can change the beneficiary. If one child doesn't need all the money for college, the account can be used for another family member.
The Donor Controls the Account
Although the funds are intended for a third party's college expenses, you as the owner make the actual withdrawals and direct the money toward the right expenses.
Others Can Contribute
If another person or group wants to help you save for college, they can contribute to the same account or start their own.
Types of 529 Plans
Prepaid Tuition Plan
A prepaid tuition plan lets the account holder purchase credits or units at a specific participating college.
You pay a percentage of tuition or the value of the credits at today's prices. When it's time for college, you can apply the plan funds without worrying about economic factors.
This plan only covers tuition costs. If your child doesn't attend that particular school, you may be able to use some or all of the funds at another college or university.
Education Savings Plan
The more common plan type is the education savings plan.
This approach is more flexible. You're saving money that can be used at any university or college, and then can be applied to all qualified education expenses.
The penalty and taxes for unqualified expenses apply to education savings plans.
How to Open a 529 Plan
You can invest in a 529 plan through a Western & Southern registered representative. Registered representatives can provide you with informed recommendations to help choose the best plan for you, especially as a part of your family's larger financial strategy.
Learn How a 529 College Savings Plan Can Help Fund Higher Education
College education costs continue to rise, but we can help you get ahead of the wave with a 529 college savings plan. Take a minute to learn some key facts about saving for college so you can plan effectively for your child’s success in life.
Important College Savings Facts
Education is the most powerful weapon which YOU can use to change the world. –Nelson Mandela
The average 2022-2023 tuition increase was 3.5% at private colleges. The average sticker price for a public 4-year in-state college is $10,940.
(Trends in Higher Education. 2022. The College Board.)
According to Trends in Higher Education 2022, over the 3 Decades between 1992-93 and 2022-23, published in-state tuition and fees at public four-year institutions increased from $4,870 to $10,940.
2In 2020, young adults with a bachelor’s degree earned 63% more than young adults with a high school diploma. $59,600 vs. $36,600.
(Annual Earnings by Educational Attainment. National Center for Education Statistics, May 2022.)
Funding a higher education. Are you ready?
Talk to your Western & Southern Life representative to see if a 529 plan or the death benefit and cash value accumulation potential of a life insurance policy may help you with your college planning needs.
Western & Southern Life is the marketing name for The Western and Southern Life Insurance Company, Cincinnati, Ohio.
Securities are offered by registered representatives through W&S Brokerage Services, Inc. (W&SBS), member FINRA/SIPC. Both companies are members of Western & Southern Financial Group.
According to the College Board, the average published prices for tuition, fees and room and board for four-year undergraduate colleges and universities (with estimated room and board) during 2020-21 are:
$22,180 for in-state public schools
$38,640 for out-of-state public schools
$50,770 for private non-profit schools
These are not small sums of money. In fact, these 2020-21 costs reflect tuition and fees increases of 1.1% (for in-state public schools), 0.9% (for out-of-state public schools) and 2.1% (for private non-profit schools) compared to 2019-20.
How Much Do You Need to Save for College?
How Much Do You Need to Save for College?
Your children are growing up fast. Are you financially prepared to help them pay for college?
Anyone — parents, grandparents, aunts, uncles, friends — can open an account. You even can set one up for yourself to finish or pursue your own undergraduate or graduate degree.
Who can contribute to a 529 Plan?
The account owner and other relatives and friends may as well. And as the account holder, you remain in control of the investment. Beneficiaries cannot independently access this money on their own.
Is there a contribution limit?
There is no annual contribution limit for 529 plans. However, you may incur gift taxes if you exceed a certain amount. 529 plans do have maximum accumulation limits, which vary by state, but some are more than $300,000.
Are there fees on a 529 plan?
Different plans have different fees, which might include an application or enrollment fee, ongoing administrative fee, asset management fee, or brokerage fee. These fees may be collected by the plan itself, the state sponsor of the plan, or both
Which 529 plan does my state offer?
Each state offers a 529 plan. You can view a full breakdown from College Savings Plans Network. You may receive tax advantages if you're a resident of that state. The plan may allow in-state residents to deduct some or all of their contributions from their state income tax. You can sometimes invest in another state's plan, though you would not get the tax benefits from that state.
What are the risks of a 529 plan?
A 529 plan is an investment, meaning it comes with risk. A plan's investment options include mutual funds, which are not guaranteed to increase in value. Depending on market fluctuations can lose value. That's why it's important to pick an investment fund with a risk level you can tolerate. Some funds are more aggressive than others, and your risk tolerance can change as your child gets closer to withdrawing the money. Some plans include age-based accounts, which adjust the risk depending on the date the funds will be needed.
What if I spend on an unqualified expense?
If you make a distribution from your 529 plan that does not meet the criteria for qualified educational expenses, you may be required to pay income tax as well as a 10% early-distribution penalty on the investment gains.
As you consider investing in a 529 college savings plan, you may want to partner with a company you already know. Besides offering life insurance and retirement solutions, Western & Southern could help you with saving for college, too. Working with us means you can get everything you need all in one place and straightforward answers from experienced financial representatives.
Longevity & Stability
Investors should carefully consider investment objectives, risks, charges and expenses before investing in a 529 savings plan. This and other important information is contained in the Issuers Program Description which can be obtained from a financial professional. The Program Description should be read carefully before investing.
Securities offered through W&S Brokerage Services, Inc., member FINRA/SIPC. W&S Brokerage Services, Inc. is a member of Western & Southern Financial Group.
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