This week we go over 529s and why they are important!
Just as a disclaimer, we are not financial advisors. This is not financial advice.
Here are a few questions we answer about 529s in this episode:
Why:
- College is expensive! In 18 years it could cost well over $200,000 for public in state college tuition
- With using a 529, your child could go to college taking on little or no debt - which could help them in their adult future.
What:
- An investment account offering tax breaks that allows you to set aside money for qualified educational expenses - like tuition, fees, books & room and board
- 529 named after its section in the IRS tax code
How Does It Work:
- Each 529 has an account owner (often the parent) and a beneficiary (the student). The owner controls the investments.
- Anyone can contribute to a 529 and there are no income or age limits on contributions.
- 529 contributions are made with after-tax dollars. So qualified distributions for a 529 are completely tax-free.
- You can even get a tax deduction or tax credit in 35 states!
How To Set It Up:
- Each state has their own pan. But you don’t need to use your state’s plan. You can go with the most affordable plan.
- Check out this article from College Investor about which is best for you depending on your state: https://thecollegeinvestor.com/529-plan-guide/
Fun Facts:
- From tax changes in 2017, you can now use money in some 529 plans for K-12 public, private or religious school tuition. You can withdraw up to $10k per year. Though the taxes may still be owed on the earnings of this money depending on your state. But federally, this is tax free.
- The SECURE Act passed in December 2019 now allows you to use 529 dollars for apprenticeships, homeschooling expenses and repayment of up to $10,000 of student loans for the beneficiary and their siblings.
- What if your child doesn’t go to college or doesn’t use all the money saved in the 529? You can transfer the funds to another child or even grandchild! And if you want to use the money in a 529 for noneducational expenses, you can. But non qualified withdrawals are taxed and hit with a 10% penalty. And the person who receives the distribution pays the tax!
