529 Plans

529 savings plans are a form of college savings account sponsored by individual states. They are investment accounts offering potential tax benefits and are extreme versatile. When funds are contributed into an account, they are most commonly invested into mutual funds. Although there are initial sales charges and ongoing expense fees charged by the fund companies, in most cases, the states and the fund companies have agreements to lower the fees on mutual funds inside these 529 plans. So, in most cases, the fees are considerably lower than those on the same mutual fund in the open market.

The account values rise and fall along with the market value of the holdings in your portfolio. Any-one is eligible to make a contribution into the account. Contributions to the account may be state tax deductible and are allowed to grow tax deferred.  The best part to these plans is that qualified distributions are tax free. Also, you have the option of changing owners and beneficiaries on the account when necessary.

You are free to participate in either a plan offered by your state, or a plan offered by any of the other states. Whichever option you choose, you are free to use the entirety of the funds to go to any accredited college in any state. If you participate in the plan offered by your state of residence, you may receive a state (not federal) tax break.

Almost every state offers its own 529 savings plan. Illinois offers two savings plans. The first is administered by Oppenhiemer and known as "BrightStart". BrightStart offers the in-state tax de-duction, but has few investment options. However, these options are at the lowest cost (expense fees) of our three highlighted plans. The other Illinois plan, known as "Bright Directions", also offers the in-state deduction. It has a wide variety of funds offered by multiple investment com-panies. The Out-of-State plan we highlight is the Virginia plan offered by American Funds known as "CollegeAmerica". This plan does not offer the state-tax deduction for Illinois residents and is invested solely amongst the funds offered by American Funds.

These accounts are fairly simple to establish. However, there are many considerations involved in choosing which plan best suits your needs and risk tolerance. As discussed above, each plan has its strengths and weaknesses. Expenses and strength of investment also must be considered.

If you are interested in learning more about these plans, or to find out which plan may be best for you, please send an email, or give me a call. As always, I will be more than happy to help in any way I can. Until next month, take care!