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In The Money August 20th, 2009

Articles that discuss the earning of money, the investment of money, the saving of money.

529 Plans

Mike Brandone

Saving rates have increased in recent months, individuals are rethinking when and where to put their savings. With so many choices it’s difficult to choose the investment that makes the most sense. If you have children or grandchildren or even great grand children you may want to look at how 529 plans can benefit all parties concerned.

529 plans allow the funds in the accounts to grow tax deferred; when the funds are used for qualified education purposes the distributions are tax free. These accounts can be established for any child by either parent or both, grandparents or other family members. Contributions into these accounts can range as small as $50 a month to $13,000 annually. Maximum contributions for each individual are $65,000, and for a husband and wife each contributing the maximum, the total investment can reach $130,000. With the federal gift tax exclusion at $13,000 for 2009 this is a great tool to transfer wealth to future generations and avoid taxation.

There are two types of plans, first, the more popular, is the Saving Plan which is offered in 48 states and Washington D.C. These plans are just as advertized, a college savings plan. The second but more limited plan is the Prepaid Tuition plan. This plan is only offered in 13 states. As an investor you can choose to invest in either type of plan and you can choose to invest in the plan offered by your state or opt to invest within a different state’s plan. All the plans are administered by the individual states.

In years past, before 529 plans, one saving program was the Uniformed Gifts to Minors Account (UGMA). These accounts titled the accounts in the name of the child with a parent as the custodian. The child’s social security number was used thereby reducing the taxable interest income in the account to the child’s tax bracket. A great advantage tax wise, but the only problem with these accounts were that at maturity age the child could ask for and receive the money for any reason. You can see where a problem could be created between the child and the parent when one wishes the fund for school and the other wishes the fund for play. At 18 the funds are legally those of the child.

529 greatly increased the safety of the funds for the betterment of both the child and the donor parent or grandparent. First, the account holder (parent or grandparent) retains control of the account. The earnings or growth of the investments in the plan are tax deferred and when the funds are distributed for qualified education expenses the funds are tax free. Second, if the child chooses not to attend college, or if the funds are greater than the actual college costs, these accounts are allowed to have the beneficiary changed to other children in the family. As you can see, these plans allow greater flexibility than their predecessor UGMA’s.

Let’s face facts: college costs have risen and continue to rise at alarming rates in relation to our current cost of living and inflation rates. Saving for your children or grandchildren’s future is one of the best ways to ensure a lasting legacy. If you want to know more about 529 plans, saving for the future, or you have general investments, please feel free to contact our team.


Michael Brandone, CLU, ChFC, CFP is a financial Services professional with over 25 years experience in financial planning. Mr. Brandone owns Horizon Financial Services a full service financial planning agency in Del Mar CA, He also owns Vue Insurance Services an Insurance brokerage firm in Del Mar, CA. To contact Mr. Brandone e-mail him at or call 858-259-0131, ext 313. Securities and Advisory Services offered through Torrey Pines Securities, Inc a member of FINRA.









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