Investing for Education: What is a 529 Plan?

Sep 8, 2016 | Blog, Investing

September not only marks the beginning of school, but also National College Savings Month, which is a perfect time to begin planning to invest for education. If your children are heading off to school (or are going to in the future), you’re probably already wondering how to pay for their ever increasing educational expenses.

Although you should always put your own financial health first, it’s a wise move to begin investing for education early (if you can afford it in your financial plan).

With that in mind, here is what you should know about the most popular investment vehicle for education: the 529 Plan:

So, what is a 529 plan?

A 529 plan allows you to contribute after-tax dollars towards a beneficiary’s education (it doesn’t necessarily have to be your child’s). The advantage of 529 plans is that your money can grow tax-free federally and the distributions are also tax-free if they don’t exceed the cost of education. Harnessed with the power of compound interest, this federal tax-free growth can allows your wealth to grow far faster than it would in a traditional account.

State benefits

When asking “what is a 529 plan”, you should consider that each state offers a direct 529 plan through them, in addition to advisors offering their own plans in many states. In an attempt to sweeten the deal, many of these plans offer their own unique benefits, especially if you’re an in-state resident. Often, when you’re a resident in a state, you can enjoy the benefits of a state income tax reduction. Of course, every individual has unique financial needs, and each plan should be considered individually in comparison to your financial situation.

Want to learn more?

At LexION Capital, we meet with our clients individually to custom tailor an investment plan to meet their unique goals and needs, such as handling the costs of higher education. If you’re interested in learning more about our fiduciary services and how we can help you reach your goals, don’t hesitate to contact us today.


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