Navigating the 529 Plan Landscape

Posted on: December 12, 2023

Many parents and other family members turn to 529 plans as an investment to help them save now toward their child’s educational expenses. One important choice is whether to go with a direct-sold 529 plan or an advisor-sold one. In this blog, discover what makes a direct-sold 529 plan the preferred option for many parents today.

The Basics of 529 Plans

A 529 college savings plan is a tax-advantaged savings plan created to help families and friends set aside funds for a child’s future education expenses. Many states allow for 529 plans to be used not only for qualifying higher education expenses but for private K-12 education expenses as well. The beneficiary of a 529 plan can be changed if the original beneficiary opts not to go to college or pursue other postsecondary education. Parents invest in various bond and mutual funds, as well as fund portfolios—and the plan’s performance varies based on market changes.1 Withdrawals are tax-free at the federal level when they’re used for qualified expenses.

Most states offer a 529 plan, as well. State plans are sold directly to investors (direct-sold plans) by a state financial institution. These plans may offer additional state income tax benefits to residents or students attending institutions within the state. The beneficiary can generally use a 529 plan’s funds regardless of where the investor or beneficiary lives or where the beneficiary attends school.2

Advantages of Direct-Sold Plans

You Manage Your Account. With direct-sold plans, you’re in the driver’s seat with your account. You’ll want to choose a plan with user-friendly resources and a platform that makes it easy for you to make contributions, invite others to make contributions to your child’s account, monitor the account’s performance, and make changes as needed.1

Choose Investment Options to Fit Your Needs. Many direct-sold plans offer various investment options to meet the differing needs of investors. Investment options may include mutual fund and exchange-traded fund investments—and you may opt for static fund or age-based portfolios that help diversify risk in the account. The fees associated with these types of accounts will vary.2

Lower Costs and Fees. A significant advantage of direct-sold 529 plans is their lower overall cost. There are typically lower fees with these plans—and there’s no fee paid to the financial advisor for managing the plan’s investments.1 This means parents can maximize their savings by putting more money toward their child’s education.

When Advisor-Sold Plans May Make Sense

Some investors may find the expertise of an advisor helpful when they’re trying to balance financial planning for college with retirement planning or other goals. It’s important to weigh the benefits of using advisor-sold plans against the potential costs—and make sure that the advisor’s services align with all of your financial needs.2

BenefitEd Supports Employees in Planning for Future Education Needs

At BenefitEd, we’re proud to partner with employers to offer flexible Employer-Assisted College Savings. This allows employers to match their employees’ contributions to a 529 college savings plan. This benefit often has the effect of encouraging employees to open a 529 account or increase their contributions to an existing 529 account. BenefitEd is proud to support all state 529 plans. To learn more, contact us today.