Daniel Lerner of David Lerner Associates Discusses The Pros and Cons of Investing in a 529 Plan

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Daniel Lerner of David Lerner Associates

Daniel Lerner of David Lerner Associates is someone who understands the impact paying back student loans can have on a college graduate. Parents across the nation are looking for ways to prepare for the costs of their child’s future education to set them up for a life without crippling debt. Daniel Lerner of David Lerner Associates notes that many parents looking to save money for their child’s future education look to a 529 plan. Today’s article will allow Daniel Lerner of David Lerner Associated to discuss how parents can use a 529 plan to pay for their child’s education more strategically.

For starters, those considering a 529 Plan should know that it can now be used to pay for educational costs between grades K-12 as well as a college education. The main reason to look at a 529 Plan as an investing strategy is that all contributions made will grow tax-free, and when the time comes to withdraw the funds, there is no need to pay a federal income tax. Daniel Lerner of David Lerner Associates does note that those looking to take out the funds to pay for education before college will face a tax-free withdrawal limit of 10k per year.

Parents often like the fact that a 529 Plan can be started without having to contribute a significantly large amount. A 529 Plan can be created with as little as $20, which makes it an accessible option for parents at all different income levels. As with most investment strategies, Daniel Lerner of David Lerner Associates notes ample benefits to starting early. Even if an amount seems miniscule, the earlier an investment is made, the more time it has to grow.

When the time comes actually to contribute funds to a college education, Daniel Lerner of David Lerner Associates notes that each person’s state sets the contribution limits. Most states will allow an individual donor to contribute $16,000 annually, and married couples can contribute that amount. Certain states have maximum contribution limits that exceed half of a million dollars. These states include:

  • Idaho
  • Michigan
  • Louisiana
  • Washington

Unlike some investment strategies, opening up a 529 Plan is relatively easy. Daniel Lerner of David Lerner Associates recommends utilizing a licensed financial advisor to open an account, but it can also be done online. There will be questions regarding the investment options to select, but having a professional look it over can guarantee that the automatic contribution options are managed effectively. Investors can receive annual updates on how their money is growing and continue to contribute more as their personal finance situation allows.

Parents who invest in a 529 Plan should know that their savings can go toward most educational institutions. Suppose a plan is sponsored in New Jersey. In that case, this does not prevent the recipient of the funds from utilizing these funds to pay tuition at a University in California. Daniel Lerner of David Lerner Associates notes that these plans are often recommended for parents with multiple children. For instance, if a fund was started to pay for the college education of the eldest child, but that child earns a full ride thanks to academic or athletic achievement, the funds can then be moved to pay for the second child’s education. The funds can also be transferred to spouses, first cousins, and more. When a beneficiary changes, there’s just a bit of paperwork to complete.

According to Daniel Lerner of David Lerner Associates, the biggest drawback to investing in a 529 Plan is that any funds that need to be withdrawn for a purpose other than paying for education will likely incur a 10 percent tax penalty. There are exceptions, such as death or a disability that prevents someone from pursuing a college education. The key is understanding the risks of signing up for a 529 Plan and then making the best decision based on the facts.

529 Plans are more appealing in particular states because some states impose restrictions on who is eligible for the tax benefits of a 529 Plan. Daniel Lerner of David Lerner Associates notes that this is another reason to discuss individual circumstances with a trusted financial advisor. For people who want complete control of their investment choices, a 529 Plan is often less appealing as the investor has minimal control over where the investments are being made to grow the funds contributed to the plan.