Skip to main content

Sound Advice: October 6, 2021

Investing in Education? Here’s How

Although it’s tempting to think the purchase of a home for your family is the biggest investment you’ll ever make.  In most cases, it’s not.  

The Number One investment will be your children’s education.  For a baby born today, four-year tuition at a private college will be more than $500,000.  Multiply that by the number of kids in your family and it will dwarf whatever most homes cost. 

The good news is that in many cases financial assistance will be available, especially if the students have good academic records.  In addition, student loans can help fill in the shortfalls.

Even so, the parents or grandparents will still have to bear a substantial part of the cost.  That’s where 529 plans come in.

A 529 plan is a tax-advantaged plan to encourage savings for future education costs.  There are two types: prepaid tuition plans and education savings plans.  Every state has at least one type of 529. Education savings plans are the most common.

The funds in a 529 can be used for future qualified higher education costs, which include tuition and mandatory fees as well as room and board. That includes textbooks that are required reading and computers if they are used primarily by the beneficiary during any of the years the beneficiary is enrolled at an eligible educational institution.

What are the limits on annual contributions?

For parents or grandparents (as well as other family members and friends), the annual limit is $15,000 per individual or $30,000 per couple. 

What are the maximum contributions allowed?

California has the highest maximum, at $529,000, followed by New York and South Caroline at $520,000.  Georgia and Mississippi have the lowest maximums: $235,000. Any contributions made to these accounts above the limits will be returned to the donor.

Are contributions tax-deductible?

Over 30 states offer a state income tax deduction or tax credit for 529 plan contributions, but usually taxpayers must contribute to their home state’s 529 plan to qualify.  Seven states offer a state income tax benefit for contributions to any 529 plan. 

Which are the best 529 plans?

The similarities of 529 plans exceed the significant differences.  If we compare them on the basis of tax benefits and costs involved, however, New York, Ohio, Illinois, and Massachusetts are among the most attractive. You are not limited to your home state’s plan. 

What if the beneficiary doesn’t go to college?

There are several options.  Change the beneficiary to another family member.  Use the funds for apprenticeships.  Pay off student loan debt.  Put the funds toward K-12 education.  You can spend up to $10,000 on tuition expenses for elementary, middle or high school.

N. Russell Wayne, CFP®

Sound Asset Management Inc.

Weston, CT  06883

203-222-9370

Any questions?  Please contact me at nrwayne@soundasset.com

 

www.soundasset.com

www.soundasset.blogspot.com

  

Comments

Popular posts from this blog

Sound Advice: April 7, 2021

The High Dividend Strategy: Pros and Cons Let's start with the bottom line about investing in high dividend stocks: It works, but there are significant wrinkles.  A while back, I did a 20-year study of investing in high dividend stocks.  The approach was straightforward.  I began with the S&P 500 universe and divided it into 10 groups of 50 stocks each.  The groups were arranged by dividend yield, highest to lowest, at the beginning of each of the years.   I then tracked the total returns (dividends plus capital appreciation) of these groups for the full period. The results were illuminating.   The highest total returns were from the group with the highest dividend yields.   The returns then descended in perfect order down to the group with the lowest dividend yields.   What's more, the aggregate return from the group with the highest returns was greater than that of the Standard & Poor's 500 and its volatility over the period was lower. That did not mean all

Sound Advice: April 14, 2021

Up, Down & Sideways   In past years, the warmer months brought with them a time to turn one’s thoughts to more blissful endeavors.   Although childhood may have been many years ago, what lingers is the apparent freedom from care we felt when at last we were done with school.   Much has changed since those halcyon days when time hardly seemed to move.   Back then, the days went by slowly and the important decisions were few.   Now it’s almost as if you don’t know which direction to turn first. It’s all about communications and the seeming necessity of keeping up to date with what’s going on.   Much of the rising flow of developments may have little impact, but even so it’s no longer a time when we can disconnect until September. From an investment perspective, the challenge is to sort through the rapidly growing mountain of information to isolate the data that is critical and take action where it is needed.   On a grand scale, it’s a matter of separating the wheat from the cha

Sound Advice: April 21, 2021

How is the Market Doing? Despite all the noise being trumpeted by the media, the daily prattle about market moves is often wide of the mark and overloaded with information that is misleading or just plain inaccurate.   How else to explain a jump of several hundred points one day followed by a plunge the next day?   That makes no sense. Over time, the foundation for stock valuations is underlying profitability of the companies involved.   As profits increase, stock prices rise, though not necessarily in perfect reflection.   The relationship tends to be meaningful over extended periods, but often not in shorter spans of time.   That’s all about changes in investor psychology.   So let’s begin by defining the “market”.   If we are referring to stocks, the most common reference is to the Dow Jones Industrial Average, which consists of 30 major companies whose progress might be considered representative of the U.S. economy as a whole. The majority of the companies included here are r