Understanding 529 Plans: Flexibility, Options, and Investment Considerations
What Is a 529 Plan?
A 529 plan is a tax-advantaged investment account designed to help families save for future education expenses.
Contributions grow tax-deferred, and withdrawals are free from federal income tax when used for qualified education costs such as:
- Tuition and fees at eligible colleges, universities, and vocational schools
- Room and board (for students enrolled at least half-time)
- Required books, supplies, and equipment
- K–12 tuition (up to $10,000 per year per student)
- Up to $10,000 in student loan repayment (lifetime per beneficiary)
Can I Use a 529 From Another State?
Pennsylvania residents can invest in any state’s 529 plan and still receive the PA state income tax deduction, currently up to $9,000 per taxpayer, per beneficiary, per year (or $18,000 for married couples filing jointly).
This means you can compare plans nationwide and choose the one that best fits your needs, without losing your PA deduction.
PA 529 Plans
PA offers two different plan types and are self directed. They offer an affordable inflation based (Guaranteed Savings Plan) plan as well as a low cost Investment Plan
- Option for inflation adjusted savings or low-cost index plans
- PA tax deduction
CollegeAmerica Virginia 529 Plan
CollegeAmerica, offered through American Funds, is an advisor-led 529 plan used by many families who want professional guidance in building an investment strategy. It provides:
- Access to actively managed funds
- Integration with your broader investment and financial plan
- The same PA tax deduction as other plans
- There are potentially higher costs for active investments than in the PA plan
Why Target Enrollment Funds May Have More Bonds Than You Expect
Many 529 plans, including Pennsylvania’s Investment Plan, offer Target Enrollment Portfolios (sometimes called “target date” funds) that automatically shift to more conservative allocations as the college start date approaches.
In some cases, these portfolios may increase bond and cash holdings earlier than some families anticipate. This can help reduce volatility, but it also means:
- There may be less exposure to stocks, which historically have offered higher growth potential over the long term
- Tuition inflation can outpace the returns of bond-heavy allocations, especially if the shift happens many years before college
Families comfortable with more market risk — and seeking potentially higher growth — may prefer to build a custom allocation instead of relying solely on a pre-set glidepath.
The concepts illustrated here have legal, accounting and tax implications. Neither Janney Montgomery Scott LLC nor its Financial Advisors give tax, legal, or accounting advice. Please consult with the appropriate professional for advice concerning your particular circumstances. For more information about Janney, please see Janney's Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest. Thank you
