529 Savings Plan

As your children and grandchildren are going back to school, it may be time to think about their educational future, and how you may be able to help them. Loans, financial aid, and scholarships are an option, but are they the best option? Are they guaranteed? Surely the answer is no. This is where the more recent investment vehicle, the 529 college savings plan, is becoming imperative for families. A 529 savings plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs and work much like a 401k or IRA, by investing your contributions in mutual funds or similar investments. The 529 plan is not only important for your children and grandchildren, it is advantageous to you as well through tax benefits, and the flexibility it provides.

The 529 plan provides many tax benefits, the most advantageous being that any earnings grow federal income tax-deferred and may also be eligible for state tax deductions. Also, distributions for qualified higher education expenses are federal income tax-free. Although contributions are not deductible, these tax advantages are incomparable to any other college savings strategy, such as investing solely in mutual funds, which are taxed as annual income, as well as hit with the capital gains tax upon withdrawal. In addition to the tax benefits mentioned, most states currently offer a full or partial tax deduction or credit for contributions.

To put this in perspective, a couple filing jointly in Illinois with $100,000 in taxable income contributing $100 per month to each of their two children’s 529 plans will save an additional $68 on state tax deductions, along with the benefits stated previously.

Furthermore, the 529 savings plan offers the flexibility that other plans do not:


Your student can use these proceeds for undergraduate or graduate school, technical, or trade school’s tuition. Also, room and board, books, computers, or other supplies and fees can be bought using the funds from the 529 plan.

Investment Choices:

You can also choose from a variety of investments, including mutual funds, exchange-traded funds, and fund of fund portfolios. Most plans offer risk-based or age-based options so that when your student nears enrollment, their risk in the chosen investment decreases in case of market instability.


Anyone can contribute to your child’s 529 savings plan, meaning parents, grandparents, aunts, uncles, and friends. It is a “one size fits all gift” and may be the most valuable gift you can give. While there are state-set limits on how much you can contribute in total to a 529 savings plan, the threshold is high. Each year, Illinois taxpayers can deduct contributions made to Illinois 529 plans up to $10,000 per individual taxpayer, and $20,000 for a married couple filing jointly. Additionally, 529 plans allow for a special gift tax exclusion election. In general, this rule allows you to contribute up to $70,000 for each beneficiary in a single year without federal gift tax consequences- provided that you make no other gifts to the beneficiary in the same year or in any of the succeeding four calendar years.

Saving for a child’s education should be a significant part of your financial planning scenario, and starting early is important. Please consult our office if you have any questions on these educational plans, and how it can be implemented in your estate planning strategy.

Ready to Take The Next Step?

For more information about any of the products and services listed here, schedule a meeting today or register to attend a seminar.

Or give us a call at 708-481-4000