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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1, 2 OR 754

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

College Savings
Expand your practice with 529 education savings plans

4 MIN READ

KEY TAKEAWAYS

529 accounts are far more than one-time conversations with clients. Used properly, they can serve as a springboard to future business.

For many financial professionals, education savings represent an untapped practice-building opportunity. Learn how successful financial professionals cultivate client interest, build a bigger client base and increase assets under management.


Step 1
Consider the ways that helping clients with education savings strategies can also benefit your practice.


Advisor benefits can include:
 

  • Deeper client relationships. Investors consistently rank education and college savings as one of their most important objectives. Addressing this and other investment needs can help you fulfill client expectations for more comprehensive, personalized planning.

  • Sizable investments. Financial professionals often think 529 savings plans only involve small account balances, but in reality high contribution limits coupled with tax benefits may make 529 plans a potentially attractive estate-planning vehicle for high-net-worth clients, such as grandparents. (Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies.)

  • Administrative ease. Options such as age-based target date funds and payroll deduction for employer-sponsored plans help clear administrative and logistical hurdles so it’s easy to set up new accounts.

Step 2
Lay out your strategy for growing your 529 business.
 

  • Make 529 part of your routine. Discuss college planning with all new clients and integrate college savings and/or gifting into your year-end tax discussions.

  • Engage emotions. Explain to clients how getting started early and reducing the student-loan burden can make a huge difference in the lives of their children or grandchildren. Qualified education expenses can include student loan payments (principal or interest, and up to a $10,000 lifetime maximum). This applies to the designated beneficiary or the beneficiary’s siblings.

  • Tie in education savings with holiday gifting. As holidays approach, suggest that clients contribute a meaningful gift to a loved one’s 529 savings account. Also, May 29 (5/29) is National 529 College Savings Day! Celebrate with an event on the importance of setting aside money for higher education.

  • Bring the conversation outside the office. Give clients a college savings piggy bank after the birth of a child or grandchild. Suggest they earmark all deposits for a 529 account.

  • Meet with receptive audiences. Attend a PTA meeting or back-to-school event to provide informational material to parents, school board members and educational professionals.

  • Build a network. Create a network of CPAs and estate attorneys to cover the full spectrum of 529 issues, including tax benefits and student loans. Also consider holding education planning client events for people in similar age groups (new parents, empty nesters/grandparents, estate planners).

Step 3
Reach multigenerational prospects and promote the estate-planning benefits of 529 plans.


Make college savings a family affair by reaching out to grandparents and other family members to contribute. Explain how they may also be able to take advantage of estate planning benefits associated with 529 savings plans:
 

  • High gifting limits can help put money to work. Investments have the most potential to benefit the beneficiary when they have the longest possible investment timeframe. Thanks to the high gift tax exclusions of a 529 plan , contributors are able to put sizable assets to work.

  • Tax-free wealth transfers remove the tax burden, not the control. You can make sizable lump-sum investments or transfer significant assets out of an estate, including up to $16,000 ($32,000 for married couples) annually per beneficiary without gift tax consequences. For gift-tax purposes, the assets are considered completed gifts, but the grandparents — provided they own the accounts — control the assets and the withdrawals.
    No additional gifts can be made to that beneficiary over the next four years after the year in which the one-time gift is made. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Consult with a tax advisor regarding your specific situation.

  • There’s no limit on the number of beneficiaries. The number of beneficiaries for whom they can make gifts is unlimited. Eligible contributions are deducted from their estate, but the account owner retains control of the assets as well as the withdrawals.

If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to 10% penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states. Please consult your tax advisor for state-specific details.


Step 4
Connect businesses with employer-sponsored 529 plans
 

  • Prospect local businesses. Find local small-business owners through small-business directories, local chambers of commerce, and business license applications, or just drive around town.

  • Identify companies that are potential 529 clients.
    • Consider small- and medium-sized companies, which are often overlooked but represent a meaningful opportunity. The automatic contributions for multiple employees can add up quickly.

  • Explain how 529 savings plans can be a win-win to employers and employees
    • No setup costs. There are no account setup or maintenance costs incurred.
    • Minimal administration. Employees manage their accounts directly with your plan's financial professional.
    • No minimum participation. While widespread employee participation is welcome, a single shareholder is enough.
    • No upfront sales charge for participants and low ongoing expenses with 529-E shares (available only in employer-sponsored programs).

Resources to use:
How to set up an employer-sponsored 529 plan



Learn more about
College Savings
Relationship Alpha

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors. Before investing in any state's 529 plan, investors should consult a tax advisor.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only. Use of this website and materials is also subject to approval by your home office.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.