COLLEGE SAVINGS 101

Savingforcollege.com

Using multiple 529 plans
http://www.savingforcollege.com/articles/using-multiple-529-plans

Updated: 2016-07-18 by Brian Boswell

by Joseph Hurley

Most investors will choose one particular 529 plan for their college savings. But why stick with just one plan? There are several reasons why someone might want to open accounts in more than one 529 plan. Here are some of the most compelling reasons:

  1. Take advantage of a state tax deduction.

    You and your client may agree that the investment features or other qualities of an out-of-state 529 plan are more attractive than the ones that come with the in-state 529 plan. However, the fact that your client’s state offers an upfront state tax deduction or credit for using the in-state 529 plan may tip the scales in favor of the in-state 529 plan. In most states, the amount of the deduction or credit is capped to a specific dollar amount. If your client is investing more than the capped amount, he or she can put those extra funds to work in the out-of-state 529 plan. Depending on the state, rollovers from the out-of-state 529 plan to the in-state 529 plan in future years might even qualify for an added state tax benefit.

  2. Combine with a prepaid tuition plan.

    A handful of states operate 529 prepaid tuition plans for their residents. Parents might consider enrolling in their state’s prepaid plan—or perhaps in the Private College 529 Plan—to cover future tuition. Investing in both allows the account owner to cover qualifying costs other than tuition with the 529 savings plan assets.

  3. Diversify your college savings.

    Additional investment diversification can be obtained by spreading college savings around to more than one 529 plan, but rarely is this necessary. Most 529 plans offer sufficient diversification within their investment menus, tempering the need for more than one plan.

    Though small, there is also an element of risk specific to each plan that can be mitigated by holding more than one. Major changes do occasionally happen to 529 plans. The state may elect to discontinue the plan, as Wyoming did in 2006. The manager may decide not to renew its contract, as Fidelity did with its advisor-sold plan in California. Having multiple plans would make it easier to roll assets from one to the other in the event of unforeseen issues.

  4. Include a specialized investment.

    Some 529 plans offer special types of investments that few, if any, other 529 plans make available. Depending on your investment experience and risk tolerance, you may want to have a portion of your 529 savings in one of these specialized instruments:

    • Socially-responsible investments
    • Stable-value funds
    • Guarantee principal-plus-interest investments
    • FDIC-insured bank products
    • Treasury inflation protection securities (TIPS)
    • Real estate investment trusts (REITS)


  5. Receive more collateral.

    Once someone enrolls in a 529 plan they will begin to receive newsletters, bulletins, and other educational materials relating to college savings. College-savings “junkies” may want to open accounts in multiple plans just to receive more of this collateral. But be forewarned: All the extra paperwork and mail quickly becomes overwhelming.

    For the vast majority of American families, one or two 529 plans per beneficiary will be plenty.

Originally posted 2013-10-10

Most investors will choose one particular 529 plan for their college savings. But why stick with just one plan? There are several reasons why someone might want to open accounts in more than one 529 plan. Here are some of the most compelling reasons:

  1. Take advantage of a state tax deduction.

    You and your client may agree that the investment features or other qualities of an out-of-state 529 plan are more attractive than the ones that come with the in-state 529 plan. However, the fact that your client’s state offers an upfront state tax deduction or credit for using the in-state 529 plan may tip the scales in favor of the in-state 529 plan. In most states, the amount of the deduction or credit is capped to a specific dollar amount. If your client is investing more than the capped amount, he or she can put those extra funds to work in the out-of-state 529 plan. Depending on the state, rollovers from the out-of-state 529 plan to the in-state 529 plan in future years might even qualify for an added state tax benefit.

  2. Combine with a prepaid tuition plan.

    A handful of states operate 529 prepaid tuition plans for their residents. Parents might consider enrolling in their state’s prepaid plan—or perhaps in the Private College 529 Plan—to cover future tuition. Investing in both allows the account owner to cover qualifying costs other than tuition with the 529 savings plan assets.

  3. Diversify your college savings.

    Additional investment diversification can be obtained by spreading college savings around to more than one 529 plan, but rarely is this necessary. Most 529 plans offer sufficient diversification within their investment menus, tempering the need for more than one plan.

    Though small, there is also an element of risk specific to each plan that can be mitigated by holding more than one. Major changes do occasionally happen to 529 plans. The state may elect to discontinue the plan, as Wyoming did in 2006. The manager may decide not to renew its contract, as Fidelity did with its advisor-sold plan in California. Having multiple plans would make it easier to roll assets from one to the other in the event of unforeseen issues.

  4. Include a specialized investment.

    Some 529 plans offer special types of investments that few, if any, other 529 plans make available. Depending on your investment experience and risk tolerance, you may want to have a portion of your 529 savings in one of these specialized instruments:

    • Socially-responsible investments
    • Stable-value funds
    • Guarantee principal-plus-interest investments
    • FDIC-insured bank products
    • Treasury inflation protection securities (TIPS)
    • Real estate investment trusts (REITS)


  5. Receive more collateral.

    Once someone enrolls in a 529 plan they will begin to receive newsletters, bulletins, and other educational materials relating to college savings. College-savings “junkies” may want to open accounts in multiple plans just to receive more of this collateral. But be forewarned: All the extra paperwork and mail quickly becomes overwhelming.

    For the vast majority of American families, one or two 529 plans per beneficiary will be plenty.

Originally posted 2013-10-10

 

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