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It’s time for a little education on 529 Plans

As a parent you’ve scrimped and saved so your son or daughter could attend college. You did everything you were supposed to do. Your children did their part and were accepted at the university of their dreams. But the pandemic has caused everyone to question their decisions.

Should you shell out big bucks for room, board and tuition when classes may end up online? If that happens, why would you pay all that money for housing when your kids could take the same classes online from the safety of home?

There seem to be more questions than answers at all levels of education. Parents of kids from k-12 are especially faced with important decisions. Yes, it appears that many school districts will offer a menu of choices for parents.

But at the end of the day, how can you be sure what’s best for your children? The pandemic is far more than just a virus. It has disrupted many well-conceived plans and forced parents to make difficult, sometimes agonizing, decisions.

From a financial perspective, I’ve always tried to help people reach their goals by providing a number of options. Said another way, I never like to see people paint themselves into a corner. I want them to have choices and flexibility. Obviously, I never envisioned a pandemic, but nobody can see the future.

529 Plans are a good example of having choices. There are 529 prepaid tuition plans and 529 savings plans.

With prepaid tuition plans you can pay tuition in advance at defined rates for Michigan colleges and universities. The plans have recently become more flexible as they now allow funds to be used at out of state colleges.

With 529 savings plans, whatever you’ve saved and invested over the years can be used for your child’s education. But there’s an added amount of flexibility as the money can not only be used for tuition but also for other higher education related expenses such as housing, textbooks and supplies.

As an example, I recently spoke to an acquaintance whose daughter was initially planning to attend Michigan State this fall. Because of the uncertainty, she has decided to head west where she will live with a relative and take a number of online classes. I’m confident her 529 program will cover the cost of her upcoming classes.

In addition, the Tax Cut and Jobs Act of 2017 changed the 529 savings program rules for parents of children in kindergarten through grade 12. The change allows them to use up to $10,000 per year for private school tuition.

In a nutshell, any type of saving for higher education or trade schools is a good thing and I certainly encourage you to consider one. Personally, I like 529 savings program because of their ease of use and flexibility.

Flexible on how the money can be spent. Flexible in that most offer a menu of investment choices, from conservative bond funds to more aggressive stock funds and everything in between. And now, in certain circumstances, they can be used for a young child’s tuition.

529 Programs are excellent investing tools for those with children who are in or will someday go to college. With a little due diligence, I’m sure you can find one that suits your needs perfectly. Please consult with your tax advisor before investing.

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E-mail your questions to kenmorris@lifetimeplanning.com 
Ken is a registered representative of LPL Financial. Securities and financial planning offered through LPL, a Registered Investment Advisor, member FINRA/SIPC. Ken is Vice-President of the Society for Lifetime Planning in Troy. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.