The 5 Pillars of College Planning: #1 - The College Savings Process

Damian Winther, CFP® CSRIC®
Apr 11, 2024 8:54:07 AM

As a dad of four, I'm embarking on the college planning process for the first time. I'm looking forward to helping my daughters find the perfect college for them, where they can thrive academically, socially and personally. At the same time, I am also considering the financial impact. There are many factors to consider, and you may sometimes feel like you’re not doing enough. But don’t worry; you’re not alone. This blog is the first installment of The Five Pillars of College Planning. I will be covering the other pillars in upcoming blogs, so please remain on the lookout!

Read more of the Pillars of College Planning:

College tuition rates continue to rise at an alarmingly steep pace nationwide. If you aim to pay for your child or grandchild’s college education, you may want to start saving early. For many of us, this means establishing and funding a 529 college savings plan before the future student can even walk.

529 Plans & Saving Basics

As an investor, time is one of your best friends. The longer an individual has before fund(s) are needed for a specific goal (e.g., college), the higher the probability that an investment can grow. Albert Einstein is famously rumored to have said, “Compound interest is the 8th wonder of the world. He who understands it, earns it … he who doesn’t, pays it.”

A 529 college savings plan offers several key advantages for today’s younger generations and their families. These investment vehicles are a tremendous way to set aside money for future college costs while also maintaining parental/custodial control and flexibility. Some of the key benefits of 529 plans include the following:

  • Tax-Free Growth
    As long as distributions are used for qualified higher education expenses, the growth portion inside the 529 plan is eligible for tax-free distribution. If non-qualified distributions are taken, the growth portion of the 529 plan is subject to ordinary income tax plus a 10% penalty.
  • Tax-Free Return of Principal
    You can always withdraw your contribution to a 529 plan (i.e., basis or principal) without taxes or penalties. This feature is a key benefit to individuals and families who may find themselves in financial hardship without access to other sources of liquidity. It’s also an important consideration for families that think scholarships are a likely scenario for their child(ren).
  • Up to $10,000 can be Distributed to Repay Student Loans
    This relatively new 529 plan benefit allows account owners to use $10,000 from within the 529 plan to pay down student debt. 
  • Rollover or Consolidation
    Money in a 529 plan can be rolled over or consolidated into a 529 plan for qualifying family members. Eligible family members include spouses, siblings, children, aunts, uncles, nieces, nephews and first cousins. This is an excellent source of flexibility, particularly if the original 529 plan beneficiary chooses not to attend college.
  • Compounding Investment Returns
    The younger the 529 plan beneficiary, the more significant the potential impact of time and compound investment growth. This is a fantastic planning opportunity since it creates more time for the account to grow tax-free, assuming the 529 plan is established early in a beneficiary’s lifetime. 

State Tax Benefits of 529 Plans

Some states offer income tax benefits (e.g., deductions or credits) if contributions are made to a 529 plan. Depending on your primary state of residence, this may or may not be an essential reason for utilizing your in-state offered 529 plan. For more detailed information on possible state tax benefits, check out

The North Star Promise Scholarship Program

As a result of recently passed legislation, Minnesota residents may now be able to take advantage of free college tuition, assuming the family earns less than $80,000 per year (as measured by Adjusted Gross Income). The North Star Promise Scholarship Program will officially go into effect in the fall of 2024. It is estimated that this could help as many as 15,000 to 20,000 Minnesota students find a tuition-free pathway to attend college.

For those who aren’t eligible for the North Star Promise, where does this leave you? Well, that’s what we are here to talk about. It’s becoming increasingly difficult for college students to earn an undergraduate degree without incurring any debt. For that reason, we encourage clients to begin saving money in a 529 college savings plan as early as possible.

Financial situations vary from person to person and family to family. Saving for short-, medium- and long-term goals should be based on a series of decision factors and priorities. Because there is never a one-size-fits-all approach to achieving goals, we work with clients to help them outline a roadmap and develop a plan to increase the likelihood of funding their goals.

At Birchwood Financial Partners, we work with our clients to help them feel empowered and knowledgeable about the financial decisions they are making every day. Please visit our website ( to learn more about our Firm, our team, our processes and services, and the clients we currently serve.

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