When it comes to planning ahead, many parents cringe at the thought of college tuition. Fortunately, there are ways to start investing in your child’s future education — today. And better yet, there are tax-advantaged plans. According to the SEC, a 529 Plan is “a tax-advantaged plan to encourage saving for future education costs.” 529 Plans are legally known as “qualified tuition plans,” and are sponsored by states, state agencies, or educational institutions. They are authorized by Section 529 of the Internal Revenue Code.In other words, these plans can give you state-level tax benefits.
A prepaid tuition plan allows you to pay for college education at today’s rates for the beneficiary to experience when they’re ready for their college education. (Room, board, fees, and books cannot be paid for in a prepaid tuition plan.) It’s important to note that any money put into a prepaid plan can only be applied to an in-state public, not private, college or university. These plans also tend to have various limitations, so be sure to research your options thoroughly and call us with any questions.
The other option is a savings plan. These are similar to an IRA. The range of schools that will accept these funds is far greater than with a prepaid tuition plan. These funds can even be used at many trade schools. Even better, savings plans funds can be used to pay for tuition, room, board, books, and even computers and laptops if the beneficiary of the savings plan is attending at least half-time.
As of 2018, 529 Plans can also be used for K-12 education, however there are tax consequences so be sure to contact us for further information.
Any interest earned in a 529 Plan is tax-deferred. If the money is used for qualified education expenses, no taxes will be charged upon withdrawal, either. (If monies are not used for education, they will be subject to taxes and an additional 10% fee.)
Every state has different 529 Plan options, and you can open a 529 Plan in any state you choose. These plans have one owner and one beneficiary, but multiple individuals may contribute to the plan, and the owner can change the beneficiary if he or she desires.
We’re available to help you navigate your 529 Plan options. We want you to end up with the best plan for your family, your future, and your tax situation.