The benefit of 529 college savings plans is the opportunity for tax-deferred investment growth, and tax-free withdrawal, provided that the money is allotted for higher education purposes. It’s no secret that college is expensive, so getting an early start on saving is preferrable. Yet for many, a 529 plan can seem daunting – even risky. This is because, when getting a jump start on saving, the exact cost of college isn’t always known, and a common concern is saving too much in an account that may not seem as accessible as you’d like.
If the funds are withdrawn to be used for purposes not related to higher education, those funds do become taxable income and are also liable for a 10% early withdrawal penalty. Understandably, given the restrictions, families may worry about accruing more funds than necessary and suffering tax penalties when they finally attempt to withdraw the funds. However, there are alternative uses for 529 plan funds that do not result in tax penalties:
Perhaps the best decision may be to accept that there will be a tax penalty, and simply reclaim your funds. The taxes are on earnings, not principal, and it may make the most sense financially to pay the taxes.
Faithward Advisors can help you navigate the process of establishing a 529 college savings plan, allocating funds, or closing the plan out entirely. Using those funds wisely is part of striving for good stewardship with your resources, both in the short-term and for years to come.
Potential investors of 529 plans may get more favorable tax benefits from 529 plans sponsored by their own state. Consult your tax professional for how 529 tax treatments and account fees would apply to your particular situation. To determine which college saving option is right for you, please consult your tax and accounting advisors.Municipal fund securities are sold by offering statement only, which is available from your registered representative. Please carefully consider investment objectives, risks, charges, and expenses before investing. For this and other information about municipal fund securities, please obtain an offering statement and read it carefully before you invest.
Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purposes of avoiding penalties that may be imposed by law. Each tax payer should seek tax, legal or accounting advice from a tax professional based on his/her individual circumstances.