529 Plans 

 

529 plans are college savings plans where a grandparent, parent or other party contributes to the plan on behalf of the future student who is named beneficiary of the plan.

Contributions to 529 plans grow on a tax deferred basis which increases the likelihood that contributions will accumulate faster than they would in other taxable investments used for a college savings plan.

Funds taken out of 529 plans to pay qualified educational expenses are exempt from federal income taxes. Depending on the owner’s state of residence and the actual 529 plan established, these funds may also be tax exempt from state income tax.

The Owner may be subject to a 10% penalty tax and will be taxed according to income tax bracket if the funds taken out of the 529 plan are not used for educational purposes.

Two types of 529 plans qualify for favorable savings and tax treatment under IRS section code 529:

  • Prepayment 529 Plan
    Prepay the beneficiary’s tuition at a qualifying educational institution’s current tuition rates. Prepaid 529 plans are a way to hedge against the rising cost of tuition. Not all plans guarantee the complete cost of tuition will be covered.


  • Savings 529 Plan
    Establish an investment 529 plan that can be used to pay the beneficiary’s tuition and other college expenses at a qualifying educational institution. These 529 plans allow you to contribute money into a market-based account, where you retain control of the assets accumulated on behalf of the future student.

529 plans offer professional management and provide a way for the account owner to retain control of the college savings plan account assets on behalf of the beneficiary.

Options


Contribution Limits
Depends on plan specifics. Some allow up to $300,000 restricted by gift tax regulations.

Change of Beneficiary
A new beneficiary may be named as long as he/she is a member of the family of the current beneficiary. The beneficiary may be changed without income tax consequences if the new beneficiary is a member of the former beneficiary’s family.  If the new beneficiary is in the same or higher generational level than the former beneficiary, the beneficiary may be changed without gift tax consequences.

Qualified Distribution
Higher education expenses including: tuition, fees, supplies and equipment, and room and board.

529 plans are established independently by individual states. The state contracts professional management to administer 529 plans.

Estate Planning and Gifting
Contribution limits for 529 plans vary by state and by plan, and may be greater than other types of college savings plan options. This offers a unique gifting opportunity for relatives, especially grandparents, who may be thinking of estate planning strategies. A special provision of 529 plans makes it possible for individuals to gift up to $65,000, and married couples up to $130,000 at one time, to the account and pro-rate the gift for gift-tax purposes over five years.

529 plans are available through Northwestern Mutual Investment Services, LLC.

All securities are offered through Northwestern Mutual Investment Services LLC, (NMIS), Suite 600, 611 E. Wisconsin Avenue, Milwaukee, WI 53202, 1-866-664-7737. Member FINRA and SIPC. NMIS is wholly owned by Northwestern Mutual.

529 Plans are not guaranteed or insured by the FDIC or any other federal or state government agency.

Clients who invest in an out-of-state 529 Plan may not qualify for state tax and other benefits offered through their home state’s 529 Plan.
 
Consider any state income tax benefits offered by your own state’s plan.

All 529 Plans and their investment options have costs that lower the client’s investment returns.

Investment return and principal value may fluctuate so that shares, when redeemed, may be worth more or less than their original cost.

There is no assurance that any fund will achieve its investment objective.

Sold by Offering Statement only.

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