Only 10% of Americans have ever heard of a 529, according to a survey by Oppenheimer. But a recent feature in Parenting magazine highlighting the investment vehicles might help to change that. In fact, the magazine piece is so praiseworthy and so understandably written that any mutual fund company running a 529 plan might want to run out and pick up the April issue.

529s offer "smart investment choices," are run by "well-known financial services companies," and most importantly, are tax-free in both the accumulation and withdrawal stages, as long as the money is used for tuition, housing or books, Parenting says. In addition, 24 states and the District of Columbia allow investors to deduct all or part of their contributions on their state income taxes.

Money saved in a 529 counts as a parent’s, not the child’s, assets, which is beneficial when applying for grants or aid since most college financial formulas count only 6% of a parent’s wealth but will take up to 35% of a child’s savings into consideration, Parenting says.

The generous amount of annual contributions that some plans allow – up to $22,000 a year for married couples and up to $300,000 over the life of the account – are also features that make 529s a better choice than other college-saving alternatives, such as Education Savings Accounts, Parenting says.

With fees averaging 90 basis points to 1.3%, the plans are also fairly priced, according to the piece. But as far as rating the performance of the plans, Parenting tells investors 529s don’t have long enough of a track record to "sort the winners from the losers."

 

The staff of Mutual Fund Market News ("MFMN") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MFMN, and have not prepared, sponsored, endorsed, or approved these summaries.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.