A couple weeks ago, I had a lunch meeting with a client who was confident about his children’s 529 plans. He loved the fact that the gains in the accounts are not taxable as they grow, and tax free if used for higher qualified education. In fact, I reminded him that if one of his children don’t use the funds, it can be transferred to another child. Sounds great? Yes, it is because it gives the soon to be college student maximum flexibility to choose any school and not be restricted to an “in-state” school that Florida Prepaid (in his case) mandates.

My client’s understanding of 529 plans appear to be accurate until he shared with me a major tax misconception. He thought contributions are tax deductible. No, it is not tax deductible. His belief was that contributing $14,000 per child was a deduction on his tax return, similar to an IRA. There are no tax benefits for the parents contributing to 529 plans.

Learn about investing in a 529 college savings plan. Here are 5 benefits of 529 plans:

  1. You, the donor, stay in control of the account
  2. 529 plans are low maintenance and can easily be set up as automatic investments
  3. Contributions to a 529 plan do not have to be reported on your federal tax return
  4. 529 plans are flexible. You can change your 529 plan investment options twice per calendar year.
  5. Contributions are not deductible, but distributions are tax-free if used to pay for qualified higher education expenses. In a 529 plan will not be taxed when the money is taken out for college

Tax Benefits of 529 College Savings Plans by Jeffrey LaBelle


Tip: Many colleges and universities have helpful information about 529 plans on the Financial Aid section of their websites.
Example: Michigan State University https://finaid.msu.edu/saveplan.asp
University of South Florida http://www.usf.edu/business-finance/controller/student-services/student-accounting/florida-prepaid.aspx

Jeffrey LaBelle is a Florida based Investment Advisor Representative whose practice offers solutions for focused risk management, institutional style portfolio management, and tax- planning services. His team offers clients a fact-based, conservative strategy approach to preserving capital and investing wisely in an ever-changing world.

For more information contact Gulf Coast Wealth Advisors.

* NOTE: The information being provided is strictly as a courtesy. These individuals or outside entities are not affiliated with, nor endorsed by LPL Financial. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, web sites, information and programs made available through this web site. When you access one of these web sites, you are leaving our web site and assume total responsibility and risk for your use of the web sites you are linking to. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing. Non-qualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.

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