529 College Savings Plans and Investment Strategies

Wealth Management

By Kyle Zeller

College costs have been on a steady increase for the last decade resulting in a near doubling of the total outlay for a four-year undergraduate degree from just ten years ago. As a result, student loans have become a virtual necessity for most families as they plan for college costs. Unfortunately, an escalating number of college students are graduating buried in student loan debt.

For those with time to still plan ahead, one of the best ways to save for college costs is a 529 College Savings plan. These types of plans allow you to tuck money away on an after-tax basis while offering tax-deferred growth and tax-free withdrawals if used for qualified higher education expenses. While many people are aware of the 529 plan and the favorable tax rules, far too many people do not spend enough time exploring the various investment options available, analyzing the applicable fund expenses or adjusting their chosen portfolios as their children approach their college-entry point.

One solution to the diversification problem is the age-based asset allocation models offered by most states. These portfolios automatically become more conservative in their asset mix as the child gets closer to using the money, thereby creating a low-maintenance “auto-pilot” approach to account management and peace of mind. Another recommended area of focus is scrutinizing the applicable internal fees. Unfortunately, there can be huge differences not only from state to state but even between the investment offerings within an individual state’s 529 plan. Obviously a difference in fees can ultimately have a great impact on the total balance available when withdrawals begin.

If you have a 529 account and would like to review your current portfolio or possible alternatives, please feel free to discuss the matter with your Schneider Downs advisor.

Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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