Section 529 plans offer a potentially efficient way to save for future college expenses. Also known as qualified tuition programs, 529 plans are named for the section of the tax code that provides for their favorable tax treatment.
They are designed to help fund the future college educations of children, grandchildren and others. Section 529 plans are usually established by individual investors, but businesses also may offer them as employee benefits.
Any adult may open a 529 plan for a future college student; the donor need not be related to the future student. The donor can invest a lump sum or make periodic payments. In either case, contributions are made with after-tax dollars. Any earnings at distribution for qualified expenses, such as tuition, books and room and board, are exempt from federal taxes. Most, but not all, states also allow tax-free withdrawals.
Your Lincoln Financial Advisors (LFA) planner is prepared to help you determine whether a 529 plan suits your college-expense planning needs. Our firm offers access to a variety of 529 plan sponsors in many states.
Although qualified withdrawals are exempt from federal taxes, nonqualified withdrawals may be subject to taxes and a 10 percent penalty on any earnings. Investments in a 529 plan also may not perform well enough to cover the rising cost of college as anticipated. Investing in a 529 plan outside of your state of domicile may deny you the opportunity to take advantage of favorable state tax treatment or incentives.
If your state or your designated Beneficiary's state offers a 529 plan you may want to consider what, if any, potential state income tax or other benefits it offers, before investing. State tax or other benefits should be one of many factors to be considered prior to making an investment decision. Please consult with your financial, tax or other adviser about how these state benefits, if any, may apply to your specific circumstances. You may also contact your state 529 plan or any other 529 college savings plan to learn more about their features. Please contact your LFA planner to obtain a Plan Disclosure Document or prospectus for any of the underlying funds. The Plan Disclosure Document contains complete details on investment objectives, risks, fees, charges and expenses, as well as more information about municipal fund securities and the underlying investment companies that should be considered before investing. Please read the Plan Disclosure Document carefully prior to investing.