Independent 529 Plans
By: Karen Rinehart, CFP®
The Henssler Financial Group Position Paper

The Hensler Financial Group Wealth Management

The non-profit Tuition Plan Consortium will offer a 529 Plan that is tailored for private colleges. The plan will be administered by TIAA-CREF.

TIAA-CREF pools collected money and invests in a stock and bond portfolio. Payouts will be made to the appropriate college as certificates are redeemed. There are more than 240 member colleges and universities including several Ivy League schools and many other elite, private schools.

The independent 529 Plan is a prepaid tuition plan for private colleges and universities. Participants are able to purchase a certificate that is redeemable for a pre-established percentage or tuition at any member school. Individual schools decide the percentage discount the certificate will entitle the holder. For example, if you deposit $10,000, the certificate might be worth 75% of tuition at College X but only 50% at College Y. The fractions do not change if the stock market decreases or if college tuition costs increase.

Account holders do not have to commit to a particular school when they purchase certificates. They are requested to submit their top five choices and will receive quarterly reports showing how their investment works at those schools.

Additional Features of the Plan:

  • The maximum contribution limit is the cost of five years of full-time undergraduate tuition and mandatory fees at the highest-cost participating institutions.
  • There are no federal tax consequences for redemption of certificates, so the account owner is not subject to federal income tax if a tuition certificate is used to pay for tuition at a member institution.
  • Buyers must hold the investment at least three years and can receive a refund capped at a minimum interest rate if they pull out.
  • If your child decides not to go to school or to one of the member schools, you can request a refund and receive your original deposit back adjusted for fund investment performance.

As with all prepaid tuition plans, the independent 529 Plan will affect your child's chance of receiving federal financial aid. Also, the college your child attends might be less inclined to offer a scholarship or tuition discount, considering you have already paid for a portion of tuition. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.

Examples taken from the following web sites: www.savingforcollege.com and www.hardwickday.com

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.
 
©2008 The Henssler Financial Group | www.henssler.com