529 College Savings Plans
What Is a 529 Plan?
A 529 Plan is a tax-advantaged investment account that allows almost any adult—a parent, guardian, grandparent, relative, or even a friend—to help pay education expenses.
The Basics of a 529 Plan
Who can open a 529 Plan?
Who can be the account owner?
Who can contribute?
Is there a contribution limit?
Is there an earnings limit?
What Are the Benefits of a 529 Plan?
Tax Advantages
The money in the account grows federal income tax-deferred, and when you’re ready to use the money, if withdrawn for qualified expenses it is free of federal taxes though state taxes and penalties may apply. Some states even offer a deduction on their state income taxes for contributing to a 529 Plan, but be sure to check this first with your tax or financial professional or the administrator of your state’s 529 Plan.
You may also make five years’ worth of gifts (up to $75,000 for an individual or $150,000 for a married couple) to a 529 Plan without owing federal gift tax. However, you cannot make any other gifts to the same beneficiary over the next five years.
Additionally, up to $20,000 may be paid toward principal or interest of a student loan for the beneficiary or sibling.1
Versatility
Funds in a 529 Plan can be used to pay for qualified education expenses at most accredited two- and four-year colleges, universities and vocational-technical schools, including many outside the U.S., as well as certified apprenticeships.
Qualified education expenses may include mandatory fees, supplies, books, or other required equipment, and room and board, if enrolled at least half time. Funds can also be used to pay for tuition at eligible public, private and religious K-12 schools, up to $20,000 per year per beneficiary.1
Professional Management
By selecting portfolios that automatically adjust, you can invest in funds actively managed by Franklin Templeton. These age-based asset allocations move into more conservative portfolios as college nears.
For those who prefer a more active role in selecting their investments, you can customize your own portfolio based on your investment strategy and individual preferences. You can open an account for as little as $25, and there is no annual maintenance fee or sales charges. You can also set up an Automatic Investment Plan and contribute as little as $25 a month.
Can You Save for Retirement & College?
When asked, most people say that retirement is their number one investment goal. While financing education may not seem like a retirement issue, for many people – especially those with children – financing college is a top investment goal that ultimately intersects and competes with their retirement saving efforts. To prevent one effort from undermining the other, incorporate education financing into retirement planning. Successfully investing for retirement requires the right investments and the right plan. Remember to address the various challenges that may arise such as the type of retirement desired, accounting for long-term income needs, preparing for medical expenses, and financing education costs. Take small steps.
529 Investment Options
The plan offers three investment strategies designed to meet your individual investment needs. 2
Age-Based Asset Allocations – portfolios based upon the beneficiary’s age, which are periodically reallocated. 3
Objective-Based Asset Allocations – portfolios designed to reflect the amount of risk you are comfortable taking, and the potential return characteristics you prefer.
Customized Strategy – choose from one or a combination of individual portfolios that range from growth allocations to more conservative income portfolios.
Value of a Financial Professional
Having a college savings plan can be key to success.
Start the conversation with a financial professional on your college savings goals.
Questions to ask your financial professional
Whether you have been working with a financial professional for years or just starting to look for one, here are questions to help start the conversation.
- What are the different ways to save for college?
- What is the difference between a taxable, tax-deferred and tax-free account?
- Are there any state-specific benefits?
- What are the best investments options for my individual situation?
- How can I save for retirement and for college expenses at the same time?
Next Steps
What do I need to open an account?
- SSN/Tax ID Number
- U.S. Address
- Email Address
- Date of Birth
- Checking or Savings Account Number
- Bank Routing Number
Tax benefits are conditioned on meeting certain requirements. Federal income tax, a 10% federal tax penalty, and state income tax and penalties may apply to nonqualified withdrawals of earnings. Generation-skipping tax may apply to substantial transfers to a beneficiary at least two generations below the contributor. Gift examples are general; individual financial circumstances and state laws vary—consult a tax advisor before investing. If the contributor dies within the five-year period, a prorated portion of contributions may be included in their taxable estate. See the Investor Handbook for more complete information.
- Federal tax law provides that up to $20,000 per year may be withdrawn from a 529 savings plan federal income-tax free, if used for tuition expenses at private, public or religious primary and secondary (K-12) schools. It is not clear what public K-12 school costs, if any, will be regarded as tuition for this purpose. Additionally, amounts paid as principal or interest on certain existing loans of the Beneficiary or their sibling, subject to various limits including annual limits, can constitute qualified distributions. State tax benefits and treatment of withdrawals for K-12 tuition and loans may vary by state, may not have been updated for changes in federal tax law and may be uncertain; consult a tax professional concerning your state.
- The plan is managed by Franklin Mutual Advisers, LLC, an affiliate of Franklin Distributors, LLC. Plan portfolios generally invest in mutual funds managed by affiliates of Franklin Mutual Advisers, LLC. An investment in Franklin Templeton 529 College Savings Plan is an investment in a municipal security that may invest in one or more underlying mutual funds. It is not an investment in shares of the underlying mutual fund(s).
- The Age-Based Asset Allocations have been designed for savings intended for qualified higher education (i.e. college) expenses, not for elementary or secondary education tuition expenses.
Investors should carefully consider plan investment goals, risks, charges and expenses before investing. To obtain the Investor Handbook, which contains this and other information, call Franklin Distributors, LLC., the manager and underwriter for the plan, at (800) DIAL BEN® / (800) 342-5236. You should read the Investor Handbook carefully before investing and consider whether your or the beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in its qualified tuition program.
This material is not a recommendation of any particular security, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor, investment professional or insurance agent. Before making any financial commitment regarding a Section 529 college savings plan, consult with the appropriate financial advisor.
Offered an administered by the New Jersey Higher Education Student Assistance Authority (HESAA); managed and distributed by Franklin Distributors, LLC., an affiliate of Franklin Resources, Inc., which operates as Franklin Templeton. No federal or state guarantee. Principal value may be lost and investing in the plan does not guarantee admission to any particular elementary or secondary school or to college, or sufficient funds for elementary or secondary school or for college. Please refer to the Investor Handbook for more complete information.
See the Investor Handbook for more information on Franklin Templeton 529 College Savings Plan, including sales charges, expenses, general risks of the Plan, general investment risks and specific risks of investing in Plan portfolios, which can include risks of convertible securities; country, sector, region or industry focus; credit; derivative securities; foreign securities, including currency exchange rates, political and economic developments, trading practices, availability of information, limited markets and heightened risk in emerging markets; growth or value style investing; income; interest rate; lower-rated and unrated securities; mortgages, asset-backed and credit-linked securities; life settlement investments; restructuring and distressed companies; securities lending; smaller and midsize companies; and stocks.
See the Investor Handbook for more information on Franklin Templeton 529 College Savings Plan, including sales charges, expenses, general risks of the Plan, general investment risks and specific risks of investing in Plan portfolios, which can include risks of convertible securities; country, sector, region or industry focus; credit; derivative securities; foreign securities, including currency exchange rates, political and economic developments, trading practices, availability of information, limited markets and heightened risk in emerging markets; growth or value style investing; income; interest rate; lower-rated and unrated securities; mortgages, asset-backed and credit-linked securities; life settlement investments; restructuring and distressed companies; securities lending; smaller and midsize companies; and stocks.