529 Tuition Savings Plans

Putting money aside for a child’s future college expenses is one of the most rewarding investments a person can make. When talking with clients about saving for college, one of the more common accounts discussed is state-sponsored 529 tuition savings programs. There are two types of programs: 529 prepaid tuition plans and 529 education savings plans; both have benefits and limitations as vehicles to save for education.

529 prepaid tuition plans allow parents to purchase units at participating universities or colleges (typically public & in-state) through state-sponsored programs long before their children go to college. Years later, when students attend a participating college or university, their tuition and mandatory fees are covered. Generally, these plans do not include room and board. Attending an out-of-state college or private university dramatically reduces the number of credits covered by the program. The 529 prepaid tuition plan is excellent for those that have a generational history at the chosen school. But what about those seeking flexibility when planning for college?

529 education savings plans are still state-sponsored programs, but rather than prepaying for college, the student’s parent or grandparent can establish an investment account for the student’s benefit. One unique feature of this 529 plan is it allows the front-loading of 5 years of contributions into the account without filing a gift tax return. A person can contribute more to the account, but they would have to file a gift tax return. Some states even provide a tax deduction for those contributing to these state-sponsored programs.

Funds from a 529 education savings plan can pay for a broader range of college expenses than the 529 prepaid tuition programs. They can even cover up to $10,000 in private elementary and secondary school tuition. If distributions cover qualified education expenses, no taxable income will be realized from the account distribution. The 529 education savings plan is one of the few investments that the government does not tax if used correctly.

Unfortunately, the FASFA form used to qualify for federal financial aid includes distributions from 529 education savings plans and can reduce financial aid eligibility. So the timing of distributions is key to using the account most efficiently. Also, careful consideration should occur when naming the account owner because whoever owns the account will further affect financial aid eligibility. These are just some of the features and limitations of the 529 educations savings plan, and we strongly recommend you speak to a financial planner before opening an account.



When it comes to saving for college, there is an abundance of different programs available. 529s are the most common and are by no means the right fit for everyone. If you take the time to assess your financial priorities, the options become fewer, making planning much more manageable. If you would like to discuss saving for college or have any other financial planning ideas, please do not hesitate to contact any Twin Rivers team member.