OneShare Investments

529 Basics -- Our fast facts for the busy parent

A brief history of 529s

Added to the Internal Revenue Code in 1996 under the Small Business Job Protection Act passed by Congress, Section 529 opened the door of opportunity for state-sponsored, prepaid tuition programs. Rules governing 529 plans were later refined in 1997 under the Taxpayer Relief Act, and again in 2001 as part of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Similar to how Section 401(k) changed the way Americans save for retirement, Section 529 has revolutionized the way families save for college, with billions of dollars being invested each year.

Types of 529 plans

• Prepaid plans. In short, these plans allow you to purchase credits or units towards future tuition costs at participating colleges or universities. You are limited to certain college choices and in some cases have to decide on the college when you start your prepaid plan. Prepaid plans may help protect against inflation by locking in tuition at today’s prices. Most prepaid plans are sponsored by state governments and have residency requirements.
• Savings plans. A savings plan takes your contributions and invests them in individual mutual funds or age-based portfolios. The goal is for the value of your account to grow over time. The primary advantage of savings plans is that your child (considered the beneficiary) can take tax-free distributions to help pay for college expenses when the time comes. With 529 savings plans your child can go to the college of their choice.

Do-It-Yourself vs. working with a pro

• Direct-sold plans. If you are a do-it-yourself investor who doesn’t need help and guidance, direct-sold plans offer the advantage of low fees and expenses. However, the do-it-yourself approach does carry a cost in the time and effort you will have to invest in researching tax rules, analyzing individual plans, and putting together a long-term investment strategy.
• Adviser-sold plans. Setting aside time to research, analyze, and plan is not an easy feat when you're a busy parent who is juggling family, personal, and work responsibilities. That's where an advisor-sold plan from OneShare Investments can help. Your Parent Investment Specialist will take care of the research, analysis, and planning of your child's college savings account for you. A small fee or sales charge does apply, but the expert advice and the time you save are priceless.

529 plans and financial aid

The way things stand today, 529 plans do not hinder a qualifying student's eligibility for federal or state financial aid in most cases. That said, there are exceptions to every rule. Your Parent Investment Specialist can walk you through the fine print and explain the details in full.