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Section 529 College Savings Plans

Those interested in saving money towards future higher education expenses are faced with several different options. Among these options is a Section 529 College Savings Plan, which has emerged over the past 10 years as a popular college savings vehicle.

Section 529 plans are administered by the state in which the plan is offered. The various plans which are available are similar in the following regards:

1.  A plan is established by an account owner (typically the person who funds the account), with a designated student beneficiary. The owner and beneficiary can be the same person.

2.  Contributions can be allocated among a number of different investment options offered within the plan.

3.  The account balance grows tax-deferred over time.

4.  If used to pay for qualified higher education expenses, withdrawals are made on a federal and state tax-free basis.

5.  If the owner and beneficiary are different, the owner may accelerate up to five years of the annual gift tax exemption (currently $14,000 for 2014) into a single year. Thus, a single owner could open a 529 savings plan with a named beneficiary and immediately contribute up to $70,000 to the plan without incurring gift tax consequences (please consult your tax advisor for additional information).

Beyond the above, various states have additional potential benefits. For example, a New York State resident who owns and contributes to a Section 529 Savings Plan is eligible for a state income tax deduction of up to $5,000 ($10,000 if married filing jointly) for contributions made during a given year.

New York State offers two Section 529 Savings Plans – the Direct Plan, and the Advisor Plan. The Direct Plan contains investments managed by The Vanguard Group and holds approximately $12.6 billion of assets, while the Advisor plan offers investments from JP Morgan Funds and holds approximately $2.4 billion of assets. The Direct Plan has total administrative and investment costs of 0.17% per year. The Advisor Plan has total administrative and investment costs which range from 0.75% to 2.29%. Additionally, advisor plan contributions may be subject to front-end or back-end sales charges.

Numerous studies show that, all else being equal, an investor should typically prefer an investment vehicle with lower costs. While the Direct Plan does not require an advisor relationship to establish an account, investors may still wish to consult a Registered Investment Adviser who can provide guidance on the account-opening process and investment selections.

D_Bower Douglas J. Bauer is a principal advisor at AllSquare Wealth Management, LLC. As part of assisting clients with their overall wealth management needs, AllSquare Wealth offers guidance on college education funding.


AllSquare Wealth Management is a Federally Registered Investment Advisory Firm.
AllSquare Wealth Management, LLC is a registered investment adviser.


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