A new variation offers an option for saving for disabled children.
The tax incentives of 529 college savings plans are the most obvious reason to use the plans to save for college -- but there are other, less recognized, benefits, too.
Most states offer benefits beyond tax-free earnings to citizens in their own plans, and certain states offer benefits for investing in any state's plan.
"The 529 plans are the most generous tax provision ever passed by the U.S. Congress," said Peter Mazareas, a member and former chairman of the College Savings Foundation, which is hosting its annual conference this week in Austin, Texas.
About $248 billion is invested in about 12 million 529 accounts, including those in prepaid tuition plans, according to figures released Monday by the College Savings Plans Network.
Along with being college savings vehicles, the plans can be a boon to estate planning, Mr. Mazareas said.
A couple can give $140,000 to a student's 529 without the recipient's owing any tax on that sum, and it takes that amount out of the estate. The benefit is equal to five years of the couple's tax-free gifting allotment of $28,000 per year.
The accelerated gifting benefit is especially attractive to parents and grandparents because they still control those assets, Mr. Mazareas said.
The money can always be pulled out of the 529, he said, with donors owing tax only on the earnings.
Another benefit is new this year.
The U.S. Congress approved a new type of 529 plan late in 2014 that will help individuals or couples save money to cover the costs of caring for a disabled child. Up to $14,000 a year can be saved in these accounts, and earnings will not be taxed as long as the proceeds are used for the beneficiary's qualified disability expenses.
To date, most states are still determining how to offer these accounts, according to Andrea Feirstein, managing director of AKF Consulting Group.
State Medicaid clawbacks also will factor into the value of these plans, Ms. Feirstein said.
529s can be a way to invest in children's education and in their broader progress through life.
Studies have shown the more than $1 trillion in student loans coincides with young Americans' postponement of marriage, home ownership and having children. The debt burden also suggests a less prosperous future.
Research shows that young adults who have graduated from college without incurring student debt have an average net worth of $64,700, seven times the $8,700 of the average household headed by a college-educated young adult with student debt, according to Chris Lynch, senior director of TIAA-CREF and a panelist at the conference. He cited Pew Research Center data from last May.
Investing early for college almost certainly will reduce the debt burden children and grandchildren face.
In addition to helping clients, college planning discussions can have specific business benefits for financial advisers.
