Giving the Gift of Knowledge

If you’re wondering whether a college education is still a good investment, consider this: The overall unemployment rate reached as high as 9.9% in 2010, but for workers with a bachelor’s degree (or higher), it did not exceed 5.1%.1 Workers with a bachelor’s degree earn more, too — an average of 66% more over a lifetime than workers who completed only high school.2

But a college education can be expensive. For the 2010–11 school year, the average cost of tuition, fees, and room and board at public four-year colleges ranged from $16,140 to $28,130, depending on whether the student qualified for in-state tuition. At private four-year colleges, the average cost was close to $37,000.3 Because these are current costs, you can expect the price tag to be higher in the future. Over the past decade, the cost of attending a public college grew almost 6% faster than the rate of inflation.4

Accumulating assets to pay for college can be a daunting task. A Section 529 plan offers a tax-advantaged way to accumulate money for a child’s or grandchild’s education.
Smart Savings

Section 529 plans are state-sponsored or college-sponsored plans designed to help families save for higher-education costs. Investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified higher-education expenses. For withdrawals not used for qualified higher-education expenses, earnings are subject to ordinary income taxes (at the donor’s tax rate) plus a 10% federal income tax penalty.
Big Plan on Campus

Enjoying rising popularity, Section 529 savings plans have grown from an estimated 300,000 accounts in 2000 to nearly 9 million in 2009, the latest year for which figures are available.5

Donors are not restricted by income limits and may contribute up to $13,000 ($26,000 for married couples) per student in 2011 without triggering gift taxes. It’s also possible to contribute up to $65,000 ($130,000 for married couples) in a single year, as long as the donor doesn’t make any other gifts to the student for five years.

As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. In addition, there are no guarantees regarding the performance of the underlying investments. The tax implications of a 529 savings plan should be discussed with your legal and/or tax advisors because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.

If you want to help a loved one attend college, you might consider a 529 savings plan. It’s a gift that may offer lasting value.

Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses, which contain this and other information about the investment options and underlying investments, can be obtained by contacting your financial professional. You should read this material carefully before investing.

1) Bureau of Labor Statistics, 2010
2–4) The College Board, 2010
5) Investment Company Institute, 2010

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent Naperville Education Planning tax advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.

Friday, June 17, 2011