Stock Trading Academy Club

529 Plans

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Ray Fisher

Credentials
Former Licenses - Series 7, 66, 6, 24, 4 | Former Firms- E*Trade, JP Morgan, Merrill Lynch, Scottrade

Table of Contents | Pro Stock Options

What is a 529 Plan?

  • State sponsored investment account used for educational purposes
  • Contributions are made on behalf of a beneficiary, typically a minor
  • There are 2 types of 529 Plans
      • 1. 529 Savings Plan
      • 2. 529 Prepaid Tuition Plan
  • Earnings and qualified withdrawals are tax free
  • No income limits for the 529 savings plan and prepaid plan
  • High contribution limits, roughly between $200,000-$400,000
  • Money grow tax free and can be withdrawn tax free if used for qualified education expenses

529 College Savings Plan

529 plan blog
  • This plan can be used for any college in the U.S and abroad that is accredited by the Department of Education of the program, as well as k-12 levels, professional schools, technical schools, and trade schools
  • This plan invests in a portfolio of securities that typically contains etfs, or mutual funds that are invested in stocks and bonds
  • Dynamic allocation options includes aged based portfolios and enrollment date based  portfolios
  • Allocation options also include static portfolios
  • States typically offer direct sold and advisor sold plans
  • Money can be used for any qualified education expense, including books, room and board
  • You can enroll in a 529 college savings plan in any state
  • If you enroll in a savings plan in a state other than your residency, you will still get the federal tax benefits but you will not get the state tax benefits 
  • Your funds are subject to stock and bond market risk
  • Financial Institutions typically charge an annual fee to manage the account

What is a Prepaid College Plan

529 plan blog 2
  • This plan allows you to lock in college tuition at todays rates by purchasing units or credits
  • Credits and units can be purchased via regular installments or lump sum
  • Credits can be transferred to another beneficiary if they do not go to college or get a scholarship
  • Beneficiary must attend an in state public school, some private schools may be eligible 
  • Money can be used for tuition 
  • Money can not be used for housing or books
  • Most states have an in state residents only requirement 
  • Most states have an age or grade limit in order to get started 
  • Protects you from inflation against the rising cost of college
  • If the beneficiary chooses to go to a school that is ineligible, then only their contributions will be used, gains within the account will no longer be eligible 
  • These accounts are typically managed by private investment firms or the government
  • These plans are not associated with the stock market
  • There is an enrollment fee as well as other potential miscellaneous fees such as returned check fees as well as fees for changing your contribution schedule
  • Typically, funds must be used by the time the beneficiary turns 30