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Financial advisor for a 529 plan

Category

Advisors



It’s here though that financial advisors can plan a unique role in ending the debt cycle and helping their clients defray the exploding costs of higher education.

529 plans are one of the best ways to save for college. But they can be tricky to navigate. There are plenty of pitfalls, rules, tax and estate planning implications to the savings vehicle. Not to mention the sheer number of plans available and the actual concept of building out a correct allocation for each saver. It’s here that advisors have the ability to shine and use 529 plans to benefit their clients.

As an investor, you can pick mutual funds in your 529 plans. Click here to learn more about mutual funds.


Advisors Can Add Significant Value to 529 Plans


Take tax advantages for example. One of the beauties of 529 plans is that they allow investors some tax deductions when it comes to state taxes. However, these tax deductions vary by state. And while on the surface, it makes sense to choose the state of residence for the plan, that may not be the best choice in all situations. Where a family business is domiciled could affect the choice or high fees/costs may simply counteract any tax benefit. An advisor can help make the choice easier.

Likewise, when it comes to withdrawals from a plan, 529s can be complex. There are very distinct rules on what does and doesn’t count for qualified withdrawals. And those rules seem to be forever changing. There can be catastrophic tax penalties if a client gets it wrong when junior steps off to university. An advisor can play a unique role in helping time withdrawals and offer other planning/savings options for non-qualified expenses.

Then there is the estate planning potential of 529 plans as well. Thanks to “pack and stack” and front-loading strategies combined with the ability to change custodians and beneficiaries, 529 plans can be used to tax-defer assets for the long haul. Meanwhile, assets in 529 plans can potentially be excluded from estate taxes. This can be a huge advantage for high-net-worth clients and grandparents looking to leave a legacy. Advisors can be a critical step in navigating these waters.

Finally, advisors have the ability to build custom portfolios for their clients. Many advisor-sold 529 plans offer options not available in direct plans. Advisors can add additional value by building/creating portfolios designed to work with specific clients and situations. Moreover, some advisor-sold plans offer lower cost structures than direct plans.


Helping You & Your Clients Navigate the 529 Plan Waters


This is where 529s.com aims to help. We plan on building out a one-stop hub for advisors looking to add the plans to their practice. Here, we’ll have new tools to help screen, compare and analyze investment options as well as the latest data on all the advisor-sold plans and the investment options within those plans. Additionally, we’ll keep advisors abreast of the latest regulatory changes and any news affecting 529 plans, their taxes, and estate planning potential. Finally, we’ll offer both practice and portfolio management content designed for advisors to make the most out of 529 plans for their clients and underlying advisory business.


The Bottom Line


Don’t forget to check the Financial Advisor Center at MutualFunds.com where you can find different ways to manage your practice successfully.


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