Your 529 College Savings Strategy

According to a recent national survey of parents from Sallie Mae and Gallup, only 33% of parents are saving for college through a 529 plan.  The same study found that 62% of parents of college-bound children are saving for education.

Parents that aren’t using a 529 plan are not taking advantage of the tax-deferred growth and tax free withdrawals for qualified education expenses.  529 plans aren’t a panacea, and may not be the best choice if you will require a lot of need-based financial aid. If you didn’t save via a 529 plan and are going to foot the for a college-bound child this fall here’s a way to lessen the pain.

529 pass-through strategy for in-college students

If your child (or any 529 plan beneficiary)  is headed to college this fall, their tuition and financial aid situation have been determined, and you haven’t been saving through a 529 plan there’s still an opportunity to take advantage of the Oregon tax deduction.

The Oregon 529 plan has historically allowed a annual $4,000 state income tax deduction for 529 contributions for Joint filers.

Recent Oregon tax law changes allow you to deduct an initial $4,000 and carry forward a lump-sum contribution of up to $16,000 for Joint filers on future returns for up to four years.  There’s no requirement to hold funds in the plan for a minimum amount of time to take advantage of the Oregon tax deduction.  You could open an account now and make a qualified withdrawal for the fall tuition payment, which is expected to increase up to 13% for Oregon’s public universities.  You’ll save up to $800 over five years in Oregon taxes (assuming a $20,000 or greater lump sum contribution and a 9% tax rate) and the account will also grow Federal tax deferred.

If you held an out-of-state 529 plan with a basis of $20,000 or greater, you can transfer the plan into Oregon now, claim the initial $4,000 tax deduction and carry forward the amount of your original contributions (your basis) up to the $16,000 limit, according to a Oregon College Savings Network representative.

The Oregon Treasurer amended the state 529 plan on March 30, 2009 to replace the actively managed Oppenheimer Core Bond Fund with the Passive Dreyfus Bond Market Index Fund and the Oppenheimer Limited-term Government fund with the Vanguard Short Term Bond Index Fund.  These changes make the Oregon 529 plan more attractive for conservative, in-college savings. The “ultra Conservative” portfolio mix is 70% money market, 15% short term bond, 15% bond market index.

For more information on 529 savings plans check out www.savingforcollege.com

About the author

Tim Kober, CFP®

Tim Kober is the founding principal of Cedar Financial Advisors, LLC, an independent, fee-only financial planning firm based in Portland, Oregon. Tim specializes in providing Fee-Only financial planning, investment advice, and hourly consulting to individuals and families.

Prior to founding Cedar Financial Advisors, Tim spent 18 years as a Director of Strategic Planning and other Senior Management positions at Intel Corporation. He played a key role in creating and managing several successful businesses and product lines, and was valued as a trusted advisor to executives and as a leader/mentor to his team.

Tim has taken his passion for investing, solving problems and helping others and applied it to personal financial planning. He applies the same strategic thinking, problem solving, organizational, and communications skills that made him highly effective in a corporate setting to help individuals and families define and realize their personal goals.

Recognizing the critical need for fiduciary financial advisors that help clients reach their goals using sound, academically proven investment strategies, Tim established Cedar Financial Advisors, LLC.

Blessed with a wonderful wife and child, Tim loves outdoor activities such as hiking, cycling, alpine skiing, and tennis. In 2007 he rode in Cycle Oregon, an annual six day cycling adventure. He is active volunteer in his community and at his daughter’s school.

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