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Brandon Copeland and Son

6 Things to Know About 529 Education Savings Plans

Professional football player Brandon Copeland, who recently signed with his fourth team since 2015, knows that financial security is never guaranteed, especially in pro ball. So when it comes to saving for college for his two-year-old son, he’s planning ahead.

The new linebacker for the Atlanta Falcons® plans to open a 529 college savings account for his son Bryson. Money invested in a 529 grows tax-advantaged and withdrawals are tax-free if used for qualified expenses. Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies. If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.

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“I have to consider what I have right now because who knows what may happen a year or two years from now,” says Copeland, who teaches financial literacy at the University of Pennsylvania in the off-season.

“My personal goal is to save enough with a 529, so that Bryson can graduate debt-free,” he adds. “I want to save as much as possible for him because it scares me to wonder what the cost of tuition will be in the future.”

Copeland and other parents of young children are right to be concerned. Tuition and fees for four-year public colleges have doubled since 2000-01, according to the College Board.* And more than half of students today graduate with loans, with an average debt of $28,800 for those with bachelor’s degrees.*

While there are different ways to finance college or other educational training, tax-advantaged 529 plans have become the method of choice for many families.

If you’re not sure if a 529 is right for your family, here are answers to six common questions that can help you decide.

1. When should I start saving and investing for my child’s education?

With college savings, it pays to be an early bird. The sooner you start, the less you or your child may have to borrow.

Also by starting early, you’ll capture the benefit of time – meaning more years for your 529 account to grow through the power of compounding. What’s more, during your child’s younger years, you can invest in a portfolio with a greater exposure to stocks, which have more risk but also more growth potential. This can help you and your family’s education savings keep up with the rising cost of tuition and fees, which has increased faster than overall inflation.

Most families, though, don’t open a 529 account until the beneficiary is older than 7 years of age, according to financial data firm Morningstar.** And that delay can be costly in terms of missing out on market gains.

For example, let’s say parents invest $100 each month over 11 years, starting when a child is 7 years old. By the time the child is of college age, the average 529 account balance will have grown to about $18,835 (based on a hypothetical growth rate of 6%).*** But if parents begin investing as soon as the child is born, the account will have grown to nearly $39,000.

The bottom line? It’s never too late to save for higher education, but each year you wait limits the potential growth of your 529 account.

2. What are the advantages of using a 529 account?

Two big advantages of a 529 are the tax benefits and flexibility. The earnings from your 529 account aren’t subject to federal tax. Not when they’re in the plan and not when you withdraw them either, as long as you use them for qualified education expenses. In addition, your state may allow you to deduct some or all of your contributions on your state tax return if you invest in its plan.

Anyone can open a 529 college savings plan, regardless of income or the relationship to the beneficiary. The owner controls the account, but anyone can contribute to it, including grandparents, beneficiaries and extended family and friends. And one student can be the beneficiary of multiple 529 accounts.

Even better, there’s no age by which the money in the plan must be spent. You also can change the beneficiary at any time, although the replacement must be a family member of the original beneficiary—a sibling, first cousin, grandparent, aunt, uncle or even yourself, if you’re looking to go back to school.

“That kind of flexibility means a lot,” Copeland says, “because it gives me the opportunity to disperse that money to others in my family if I need to.”

3. How can I estimate how much I’ll need to my child’s education?

Putting an exact price tag on what the total cost of higher education will be far into the future can be tough. But you can develop a savings goal that’s based on the expenses you expect to cover and what sources of funds you’ll be able to rely on. For example:

  • Do you hope to save enough to cover costs at a public or private school?
  • Are you saving for a vocational or an apprenticeship program?
  • Is your aim to help fund a two-year or four-year program?
  • What about graduate or professional school?
  • Will you need to fund additional expenses beyond tuition, such as room and board?
  • Will you pay some expenses out of current income or will there be other sources of funding?
  • Do you expect your student to contribute, either through earnings from a job or education loans?

To help set a goal and plan more confidently, try this calculator. Enter the age of your child, a school your child may choose, and the percentage of costs you want to fund. The tool will give you an estimate of how much your savings target should be.

  • Discover how grandparents can also provide the gift of education through 529 savings.

4. How do the investments inside a 529 work?

College savings plans typically offer a variety of investment portfolios, usually made up of mutual funds.

The most popular are age-based portfolios that invest more aggressively when the child is younger and automatically become more conservative as college approaches. The date on the portfolio’s name corresponds roughly to the year that withdrawals are expected to start. This option appeals to savers who prefer diversification in a single, easy-to-use investment.

Other options may be attractive for those who want more control over the investment strategy. They can choose a portfolio – ranging from conservative to aggressive growth – that meets their risk tolerance and goals. The asset allocation won’t change until investors choose a different portfolio.

Some plans also allow savers to build their own savings portfolio, choosing from a list of funds. A financial professional can help you design a portfolio to pursue your goals if you elect this more hands-on approach.

  • A financial professional can help you make the right 529 investment choices for your family. Use this locator tool to find a qualified professional near you.

5. How can I use my 529 savings?

People often assume that 529s can be used only for college tuition. The fact is, rule changes in recent years have made 529s much more flexible, and they can now cover a wider range of eligible expenses, including:

  • Tuition and related fees for college, trade and vocational schools, community colleges, theological seminaries, international schools and US-managed study-abroad programs
  • College room and board
  • Computers, laptops, printers, educational software and internet service
  • Certain apprenticeship program expenses of a designated beneficiary. As of 2019, qualified education expenses includes expenses for fees, books, supplies and required equipment.
  • Student loan debt (up to $10,000 for repaying loans – a lifetime limit)
  • Rent for an off-campus apartment, if a student’s enrolled at least half-time, and up to the college’s stated room and board allowance
  • Other qualified education expenses including tuition for an elementary or secondary private or religious school (kindergarten through 12th grade and up to $10,000 incurred during the taxable year per beneficiary)

As long as the money in a 529 savings plan is used for qualified education expenses, you won’t owe federal taxes on distributions. Most states also don’t tax qualified distributions (although a few will tax withdrawals for K-12 expenses). The bottom line is that when it comes to saving for college, these tax-free distributions are a big advantage.

Just keep in mind that if you withdraw the money for nonqualified expenses, you’ll owe state and federal taxes on any gains and an additional 10% federal tax penalty on those earnings. Note, however, that if your child is awarded a scholarship, you can withdraw up to the amount of the scholarship without penalty (but you will have to pay taxes on the earnings).

What if plans change, and you don’t need all the 529 money for education? Your 529 is still a valuable tax-advantaged investment and there are alternatives to make sure your savings are put to good use.

6. How do I get started?

Virtually all states and the District of Columbia sponsor at least one 529 college plan. In most cases, you often don’t have to be a resident of a state to use its plan.

It’s still a good idea to check out your home-state plan first to see if it offers extra benefits to residents, such as scholarships, matching grants or an income tax deduction on contributions. However, tax deductions may be disallowed in the event of non-qualified withdrawals. If your state’s plan doesn’t offer additional perks or only minor benefits, feel free to shop around.

It’s a lot to wade through, and each plan will feature different investment options. Sorting through these options is easier if you work with a financial professional who can help you find the best plan for you and your child.

Once you find a plan, it doesn’t take much money to establish a 529 account. Some plans have no minimum to open an account, while others require an initial investment, with subsequent contributions as little as $25 to $50. Once you have an account, you can put your savings on autopilot by setting up automatic contributions from your bank account or paycheck.

That’s what Copeland will be doing with his plan.

“Even before Bryson was born, I was preparing and thinking about being a provider,” he says. “At first, you’re thinking, ‘OK, we’ve got our careers, we’ve got the stroller,’ but beyond that, of course, you want your child to have every opportunity.

“With a 529, you can save and invest what and when you’re able to,” he says. And the most important thing for parents to remember? “Just get started,” he says.




When to Start Saving for College,” October 2019, Morningstar.



Savings Calculator, Capital Group | American Funds.


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