The earlier your clients start saving, the less they may have to pay out of pocket for their children’s future education. A smart strategy includes a 529 College Savings Plan to help clients avoid or lower future debt and gain valuable tax benefits.
Many families make the mistake of viewing their retirement savings as a source to fund college education without realizing the potential harm they could be doing to their retirement plans down the road. But there is a strategy that recognizes the importance of saving for both college and retirement at the same time. In the same way families can make periodic contributions to their retirement plans, they can make regular investments1 for a child's college education in another tax-advantaged vehicle — 529 College Savings Plan.
Benefits of a 529 College Savings Plan include:
- Flexible investment options.
- Potential tax-free growth.
- Potential gains from compounded interest.
- The freedom to choose or change beneficiaries.
- Tax-free withdrawals if they’re used to pay for qualified education expenses2.
- Additional state income tax deductions, in certain states, if clients contribute to plans in their state of residence. Some states3 even provide state tax deductions for residents who invest in another state’s plan.
1Systematic investing does not assure a profit and does not protect against loss in declining markets. Before investing, investors should evaluate their long-term financial ability to participate in such a plan.
2When withdrawals are used for non-qualified expenses, the earnings portion of the withdrawal will be subject to ordinary federal tax, any applicable state income tax and an additional 10% federal tax penalty.
3Tax parity states include Arizona, Kansas, Maine, Missouri and Pennsylvania.
This material is provided for general and educational purposes only, is not intended to provide legal or tax advice, and is not for use to avoid penalties that may be imposed under U.S. federal tax laws. Contact your attorney or other advisor regarding your specific legal, investment or tax situation.
Investments in 529 college savings plans are neither FDIC insured nor guaranteed and may lose some value. Some states offer favorable tax treatment to their residents only if they invest in the state’s own plan. Investors should consider before investing whether their or their designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition such as financial aid, scholarship funds and protection from creditors. Any state-based benefit offered with respect to a particular 529 College Savings Plan should be one of the many appropriately weighted factors considered in making an investment decision. You should consult with your tax or other advisor to learn more about how state-based benefits (including any limitations) would apply to their specific circumstances. In addition, some states may offer an income tax deduction to any qualified tuition program. These securities are neither FDIC insured nor guaranteed and may lose value.
Before investing in a plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with municipal fund securities. Plan disclosure documents contain this and other information about a plan, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com or calling 1.800.CALL OPP (225.5677). Investors should read these documents carefully before investing.