Monday, November 24, 2014
Many families agree that 529 college savings plans are one of the best and easiest ways to save for college. However, just like any investment, the underlying portfolio of a 529 account may be exposed to stock and bond market risks, which can be a cause for concern. After all, you want to rest easy knowing the money you put into your child or grandchild’s college fund will remain secure. So how can you protect your principal college savings investment but still take advantage of lucrative tax benefits?
Look no further – Here’s why an FDIC insured 529 college savings plan may be just what you need:
1. Less Risky Investment: FDIC insured 529 plans are typically made up of low risk investments such as savings accounts or certificates of deposits (CDs), compared to plans that invest in stock-based mutual funds. You’ll never lose your principal investment (the amount you contributed) in the event of a market downturn. This type of strategy especially works well if you have a shorter time horizon until college. Just as you would adjust your retirement account as you get older, you’ll want to shift your 529 plan toward more conservative investments as you get closer to paying for college.
College Savings Bank offers three unique CD options, with various maturities ranging from 1 to 22 years, and a high-yielding savings account. The CD options include an S&P Indexed CD, a college inflation indexed CD and a fixed-rate CD. All of these products offer the same tax-advantaged benefits that are available with mutual fund based 529 plans, and are available to residents nationwide.
2. Backed By the U.S. Government: FDIC insured accounts are backed by the full faith and credit of the U.S. government. How it works is that insurance policies designed by the Federal Deposit Insurance Corporation are sold to the banks. The insurance typically covers deposits up to $250,000 per account. With a 529 plan that means if the financial institution managing the funds in your plan goes under, the first $250,000 of your contributions will be safely returned to you.
3. Choice of Options: There are a number of reasons why families today are looking for more secure ways to save for college. Whether you’ve delayed saving and only have a few years left until college, or you just don’t feel comfortable putting your child’s education funds at risk, you’ll find an FDIC insured 529 plan to suit your needs. For example, some of the CD options available within plans include fixed rate, variable rate and interest rates tied directly to the S&P 500 Index, all with a wide range of maturity dates available. You can even invest in a CD portfolio with returns tied to the college inflation rate. Some programs, such as the Arizona Family College Savings Program, also offer FDIC insured 529 plans that invest in high yield savings accounts.
4. Same Tax Benefits as Any Other 529 Plan: Just like any other 529 college savings plan, your FDIC insured 529 account will grow tax-free and you won’t pay tax on withdrawals that are used to pay for qualified education expenses. Some states also offer additional tax breaks. For example, the CollegeChoice CD 529 Savings Plan, which includes four different FDIC investment options, offers all Indiana taxpayers (resident or non-resident) a State income tax credit for contributions.
5. Available To Residents In All 50 States: There are currently 12 states that offer FDIC insured 529 plan options, but that doesn’t mean you have to live in one of those states to open an account. 529 plans are available to residents of every state, no matter where the plan is administered. Although your home state may offer tax breaks for residents, you may be able to find better investment performance and/or lower fees elsewhere.
Want to learn more about FDIC insured 529 plans?
To learn more about the FDIC insured college savings options offered by the CollegeChoice CD and the Arizona Family College Savings Program click here.