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Asset Preservation Advisors


State: GA

APA’s philosophy is to work closely with our clients to develop an in-depth understanding of their unique needs and objectives. We then customize a municipal bond portfolio that best meets their specific goals and needs. APA manages high quality municipal bond portfolios in four strategies: Short-Term, Intermediate-Term, High Income, and Taxable.

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Investors Need to do Their Homework on 529 Plans

Families value 529 college savings plans for their tax advantages, but investors considering a 529 need to do their homework. Find out more.

| BY Adriana Reyneri

A 529 savings plan can save on federal income taxes, but can also charge high fees and fail to yield state tax advantages, according to the Financial Industries Regulatory Authority, which urges investors to do their homework when it comes to a 529.

“Investors may be short-changing themselves by investing in 529 college savings plans with high fees, plans that currently do not offer them state tax benefits, or both,” according to an investor alert issued by FINRA.

The products are favored by the wealthiest investors seeking tax-advantaged investments, according to a Millionaire Corner study completed at the end of 2011. More than one-third of high net worth investors in their peak college-saving years, those ages 54 and younger, have a 529 plan with an average balance of $120,000. (High net worth investors have $5 million to $25 million to invest.)

The plans, named after a section of IRS tax code, have been available to investors since 1997 and at least one is now offered by every state in the nation, according to FINRA. Many of the plans are invested in portfolios of mutual funds, which grow tax free and can be withdrawn tax free when the money is spent on qualified college costs such as tuition, fees and textbooks. These plans can be purchased directly from the sponsoring state or, generally for a fee, from investment advisors, brokerage firms or banks.

“Some brokerage firms and advisors offer only one or a very limited number of 529 plans,” FINRA said. “The options may not include your own state’s college saving plan and may not provide you the opportunity to invest in college savings plans issued by other states, even though those other 529 plans may have lower sales loads, lower expenses, or may provide state tax advantages that are not available when invested in the plan being offered.”

Tax treatment of 529 plans varies from state to state. More than 30 states allow deductions for contributions made to the resident state plan, while a smaller number of states allow deductions made to a 529 plan from any state. The amount of deductions and tax credits vary from state to state, and some states impose taxes on qualified withdrawals from out-of-state plans.

“In many cases, the smart move is to check out a plan in your home state – especially if your state allows you to deduct some of all of your 529 contributions, but always do the math to evaluate the value to you of any state tax benefit,” FINRA said. Higher fees or poor performance may offset the state tax savings. Fees charged by 529 plans may include enrollment charges, annual maintenance fees, sales loads, deferred sales charges, administration and management fees, and underlying fund expenses, FINRA said.