LexION Blog

Should I Use a 529 Plan?

Higher education costs are constantly rising, and they will most likely be one of the largest expenses you have to tackle if you have a child and plan to support their education financially.

If you’re wondering if you should use a 529 plan to help ease the burden of these costs, or not even sure what a 529 plan is, we’ve compiled some points for you to consider:

Tax advantages

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.

Contribution limits

Unlike 401(k)s or IRAs, 529 plans don’t have one concrete limit for the amount you can contribute to them annually.  However, there are maximum aggregate limits. Federally, 529 plan balances cannot exceed the expected cost of the beneficiary’s qualified higher education expenses. The limits vary by state depending on what they believe to be the full cost of higher education.

State benefits

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 about planning for education costs?

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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