What is a 529 College Savings Plan?

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Definition of 529 College Savings Plan

A college savings plan is a type of qualified tuition program under Section 529 of the Internal Revenue Code that allows you to save money for a beneficiary’s college and graduate school expenses in a federally tax-advantaged individual investment account. Contributions to the account grow income tax deferred, and earnings are income tax free at the federal level if used to pay the beneficiary’s qualified education expenses.

Prerequisites

  • An individual to name as beneficiary
  • The required minimum contribution to open an account

Key Strengths

  • Federal and state tax-deferred growth
  • Earnings free from federal income tax if withdrawals are used for the beneficiary’s qualified education expenses
  • Favorable federal gift and estate tax treatment
  • Possible state tax advantages
  • Available to all income levels
  • High lifetime contribution limits
  • Professional money management
  • Trend toward more flexibility in investment options
  • Variety of college savings plans to choose from

Key Tradeoffs

  • Returns are not guaranteed
  • Earnings portion of withdrawals not used for the beneficiary’s qualified education expenses are taxed and subject to a 10 percent federal penalty
  • Plan’s investment portfolios are managed exclusively by the plan’s money manager
  • Fees and expenses are typically associated with opening and/or maintaining a college savings plan account (e.g., annual maintenance fee, administration fees, and investment expenses based on a percentage of your total account value)

Variations from state to state

  • College savings plans vary by state (though all must follow the guidelines set forth in Section 529 of the Internal Revenue Code)

How is it implemented?

  • Choose a specific college savings plan
  • Complete an application
  • Name a beneficiary
  • Make the required minimum cash contribution to open the account
  • Select one or more of the plan’s investment portfolios in which your contributions will be invested

From the desk of Adrienne Horen, Vice President/Investments, Janney Montgomery Scott LLC

Adrienne Horen is a Vice President and Financial Advisor with Janney Montgomery Scott LLC. Ms. Horen helps her clients develop investment portfolios with an emphasis on risk management and wealth preservation. She also has extensive experience in accessing the investment objectives of not-for-profit organizations, trade and professional organizations, and qualified ERISA plan accounts.


Janney Montgomery Scott LLC Financial Advisors are available to discuss the suitability and risks involved with various products and strategies presented. We will be happy to provide a prospectus, when available, and other information upon request. Please note that the information provided includes reference to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to you to assist in understanding the issues discussed. Neither Janney Montgomery Scott LLC nor its Financial Advisors (in their capacity as Financial Advisors) give tax, legal, or accounting advice. We would urge you to consult with your own attorney and/or accountant regarding the application of the information contained in this letter to the facts and circumstances of your particular situation. Janney Montgomery Scott LLC, is a full-service investment firm that is a member of the NYSE, the FINRA and SIPC. Prepared by Forefield Inc. Copyright 2012.

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