For parents looking to finance their children’s education, the 529 Plan is a great way to increase savings through investments and get significant tax savings in the process. But, as we’ve previously explored, investing in expanding one’s portfolio can harm others by supporting companies that don’t consider their social or environmental impacts as much as their bottom line. .
In recent years, “Environmental, Social and Governance” (ESG) investing has emerged as one way to remedy the immorality inherent in investing. Adopting this strategy in a 529 plan promises an ideal scenario for investing in children and has a positive impact as well.
However, not all 529 plans have ESG options. In this article, after discussing the 529 Account and his ESG investing basics, the 529 Plan, shown state-by-state in this PDF, allows us to invest ethically to shape a better future not just for our families, but for humanity. I can do it.
529 Planning: Overview
The 529 Plan is a tax-advantaged savings account specifically designed to be used to pay for your education. Anyone can open her 529 account, but usually a parent or grandparent opens the account on behalf of the beneficiary’s child or grandchild. Initially intended for college tuition, in 2017 he was also eligible for K-12 education.
A key benefit of the 529 plan is that withdrawals from the account are subject to no federal or state taxes, as long as the funds are used for educational expenses. However, while federal tax law justifies 529 plans, states control the plans themselves. Each state has slightly different rules and regulations regarding 529 plans and the benefits or tax exemptions you can receive. For example, some states offer tax credits or credits for donations to 529 accounts, while others do not.
The most common type of 529 plan is the “Education Savings Plan”, which is offered directly by the state itself or brokers such as Fidelity or Vanguard. When an account holder contributes money to her 529 Savings Plan, that money accumulates in a portfolio of investments that grow until the child is ready for college.
Unlike typical brokerage accounts, 529 plans generally have limited investment options. For some people this may be convenient as it reduces the stress of choosing their investment. ‘ is also offered. This usually means making more aggressive investments on longer timescales and becoming progressively more conservative as the target date approaches.
529 plans can be inconvenient for investors who prefer to manage their portfolios. This is especially true for socially conscious investors as many 529 accounts do not offer options for this approach. Choosing the right 529 plan is important for investors who want to follow ESG or related approaches.
Explanation of ESG investment
Environmental, social and governance (ESG) investing is a set of criteria that investors can use to screen socially conscious companies.
Environmental standards screen for the company’s impact on the natural world. This may include climate policy, energy or resource use, greenhouse gas emissions, and animal treatment.
Social standards examine a company’s efforts to promote social justice inside and outside the organization. Factors include stance on racial diversity, LGBTQ+ policies, and overall policies within the company, but also advocating for justice in public.
Governance standards focus specifically on corporate leadership – factors such as behavior, interaction, purpose and accountability.
A company’s ESG score is calculated by investment research firms such as Bloomberg, S&P and Dow Jones. While it is possible to invest in individual companies with high ESG scores, a more convenient option is to invest in an ESG mutual fund or exchange traded fund (ETF) that contains a basket of organizations with high ESG scores. His popular ESG funds include Vanguard FTSE Social Index Fund (VFTAX) and iShares MSCI USG ETF (SUSA).
ESG investment in 529 plans
As noted above, not all 529 plans offer ESG investing in their portfolio options. Below is a complete list of the 529 plans by state. ESG investments are available for each plan.
Caveats and Considerations
529 investment options vary widely, especially with respect to ESG alignment. Currently, only 20 states offer his ESG funds as part of 529 programs. And almost all of these are individualized or customizable portfolios. Only her one state, California, offers an automatic admission year portfolio with ESG criteria.
Anyone can invest in a 529 plan from any state. So even if his home state doesn’t have his ESG options, other states can easily access these portfolios. However, choosing your own state plan is usually the only way to get a special tax credit for your donation. This is an important factor to consider.
Recha Bergstrom is a female imaging radiologist. She is the founder and CEO of The Physician Philanthropist, helping physicians learn how to give effectively and invest responsibly to maximize their positive impact on the world. You can reach her on LinkedIn, Facebook, and Instagram. Join her private Facebook group, The Physician Philanthropist Group.
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