Series 51: Considerations For Opening A 529 College Savings Plan

Taken from our Series 51 Online Guide

Considerations for Opening a 529 College Savings Plan

Typically, 529 college savings plans are offered by states. Contributors who use their own states’ plans often receive state tax benefits, along with federal tax benefits. For example, contributors to 529 plans in some states may be able to deduct their donations from their own state income tax and withdraw earnings at the state level tax-free. In addition, some states offer to match their residents’ 529 contributions. But these are only incentives; contributors are free to open a 529 college savings plan in any state.

Contributors may open a 529 college savings plan in three different ways: They can (1) go through an authorized investment firm, often referred to as an advisor-sold plan; (2) go straight to the source with a direct-sold plan from the state or its primary distributor; or (3) purchase a plan through a selling dealer.

An advisor-sold plan offers access to an investment professional who can advise the contributor, but he may have higher fees and additional charges when compared to a direct-sold plan.

A selling dealer is a municipal securities dealer, other than the state’s primary distributor, that sells such plans under a selling agreement it has with the primary distributor. In an effort to better market 529 college savings plans, distribution networks of seller dealers and banks assist the primary distributors of the plans.

The contributor may select one of several investment portfolios, which the college savings plan will manage for the account holder. These investments are not guaranteed by state governments and are not federally insured. College savings plans are subject to investment risk, because their value can decline over time. They are also subject to inflation risk, because the cost of goods and services may rise faster than the performance of the investments.

In most states, the contrib

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