Question

How do I find an expected return (Ke) of a 529 college savings plan? There are no dividends and sites like Yahoo Finance do not provide growth rates. If I am looking back to previous years, would the Ke be the actual growth rates achieved?

Answer 1

Answer :-

A 529 plan is a tax-advantaged savings plan designed to help pay for education. Originally limited to post-secondary education costs, it was expanded to cover K-12 education in 2017 and apprenticeship programs in 2019.

There are two major types of 529 plans are savings plans and prepaid tuition plans.

Savings plans grow tax-deferred, and withdrawals are tax-free if they're used for qualified education expenses.

Prepaid tuition plans allow the account owner to pay in advance for tuition at designated colleges and universities, locking in the cost at today's rates.

529 plans take their name from Section 529 of the federal tax code, the plans themselves are administered by the 50 states and District of Columbia. Anyone can open a 529 account, but they are typically established by parents or grandparents on behalf of a child or grandchild, who is the account's beneficiary.

529 Savings plans are the more common type. The account holder contributes money to the plan, which is typically invested in a selection of mutual funds. Account holders can choose the funds they want to invest in, and how those funds perform will determine how the account grows (or, worst-case scenario, shrinks) over time. Many 529 plans also offer target-date funds, which adjust their holdings as the years go by, becoming more conservative as the beneficiary gets closer to college age.

Withdrawals from a 529 savings plan can be used for both college and K-12 expenses. In the case of a 529 savings plan, qualified expenses include tuition, fees, room and board, and related costs.

The earnings in a 529 plan are exempt from federal and state income taxes, provided the money is used for qualified educational expenses. The Growth Rate is assumpted before-tax return on savings is 8 %

529 plans have very specific transferability rules, governed by the federal tax code (Section 529). The owner (typically you) may transfer to another 529 plan once per year, unless a beneficiary change is involved. You are not required to change plans to change beneficiaries. You may transfer the plan to another family member, defined as:

1. Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them.
2. Brother, sister, stepbrother, or stepsister.
3. Father or mother or ancestor of either.
4. Stepfather or stepmother.
5. Son or daughter of a brother or sister.
6. Brother or sister of father or mother.
7. Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
8. The spouse of any individual listed above.
9. First cousin.

Growth Rates of 529 Plan :-

Example :-

I. Invest $439 monthly for 18 years which grows to $186,000 at 7%.

II. Pay $1,420 monthly on a $186,000 loan for 15 years at 4.53%.