What is a 529 Plan?
A 529 plan is a tax advantaged way to save for college and pay for higher education expenses. Unlike some other savings vehicles, a 529 allows you to make sizeable contributions, often over $300,000. The funds may generally be used for any qualified college or higher education expense, including tuition, room, board, fees, books, supplies and equipment. Tax benefits may be subject to certain restrictions.
Money in a 529 plan grows federal and state tax free. In addition, you can withdraw the money without having to pay federal and—depending on the plan and where you live—state income taxes, as long as it’s used to pay for qualified higher education expenses. If the money is used for other purposes, the earnings portion of a withdrawal is subject to ordinary federal income tax, an additional 10% federal tax and any applicable state income taxes.
Who needs a 529 Plan?
Families who are saving for their children’s college education, or adults saving for a college education for themselves, may find that a 529 plan can be a key component of their education funding.
What is covered in a 529 Plan?
Generally, 529 plans come in two forms: college savings plans and prepaid tuition plans. College savings plans allow you to invest your money in an account to pay for the beneficiary’s (student’s) higher education expenses. Students can use the funds for qualified expenses at accredited institutions in the U.S. and abroad. Conditions, such as contribution limits, vary by plan. 529 savings plans are subject to market risk and volatility. Accounts may lose or gain value. Diversification does not assure a profit or protect against loss.
Prepaid tuition plans allow you to “lock in” tuition rates at eligible colleges or universities with a lump-sum investment or monthly installment payments. In other words, since you are paying in advance, you are avoiding potential tuition inflation down the road.
Investments in 529 college savings plans are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.
Before investing in any plan, investors should carefully consider investment objectives, risks, charges and expenses. Plan disclosure documents contain this and other information about the plans, and may be obtained by asking your financial advisor, by visiting our website at www.oppenheimerfunds.com or by calling 1.800.525.7048. Read these documents carefully before investing.
Some states offer favorable tax treatment to their residents only if they invest in the state’s own plan. You should consult your tax advisor.