Grow Financial Federal Credit Union
July 6, 2023

Saving for College Education with 529 Plans

One of the biggest life events that many people save up for is a college education for their child. Given the growing cost of college, having a savings strategy in place makes sense. One of the best options available is a 529 plan, which makes a great cornerstone of any College Savings Plan. It’s a tax-advantaged savings vehicle that can be used to pay for qualified educational expenses. Anyone can open a 529 plan, and there are two types: College Savings Plans and Prepaid Tuition Plans.

529 College Savings Plan

A 529 College Savings Plan is the most popular option. It’s an individual investment account that you contribute money to, and your funds are allocated to your choice of one of the plan’s pre-established investment portfolios. Almost every state offers a 529 College Savings Plan, and you can join any state’s plan.

Use your 529 College Savings Plan funds for:

  • The full cost of any accredited college or graduate school in the United States or abroad, including tuition, fees, room, board, books and supplies.
  • Certified apprenticeship programs, including fees, books, supplies and equipment.
  • Student loan repayment (with a $10,000 lifetime limit per 529 plan beneficiary and $10,000 limit per each of the beneficiary’s siblings).
  • K–12 tuition expenses, up to $10,000 per year.

As an investment account, returns aren’t guaranteed. However, investment options range from conservative to aggressive in terms of risk, so you can choose what you’re most comfortable with. You can also change your investment allocation over time to lower risk options as your child gets older, and some plans even do this automatically. The best part? Your contributions grow tax-deferred, and your earnings are completely tax free at the federal level when they are used for the beneficiary’s qualified education expenses.

Withdrawals that aren’t used for qualified expenses are subject to federal income tax with a 10% penalty tax, and you should always read the issuer’s official statement carefully and consider the investment objectives, risks, fees and expenses associated with a 529 plan before investing.

529 Prepaid Tuition Plan

The second type of 529 plan is a Prepaid Tuition Plan, which is currently available in nine states. As the name suggests, you prepay your child’s college tuition at today’s prices through the purchase of certain units or credits which helps protect you against future increases in college tuition costs. Prepaid Tuition Plans aren’t tied to the stock market, so there’s no investment risk to consider. The funds can only be used on mandatory fees and tuition, but any withdrawals used for qualified expenses are not taxable. To participate in a state’s Prepaid Tuition Plan, you must live in the state, and your child would need to choose a college that participates in the plan, typically in-state public colleges.

Considering a 529 plan? Contact a CFS* Financial Advisor.

When you open a 529 plan, you’ll enjoy peace of mind knowing that you’re securing your child’s educational future in a strategic, tax-advantaged way. Ready to learn more about college savings options? We’re here to help!

Grow has contracted with CUSO Financial Services, L.P. (CFS) to provide investment services, and your CFS* Financial Advisor will help you build a plan that meets your needs. The advisor will look at your current spending, saving and investing, learn about your goals and priorities, make objective recommendations and support your efforts moving forward through the implementation and management of your plan.


*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members. For specific tax advice, please consult a qualified tax professional.

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