Educate Yourself about 529 Plans

Educate Yourself about 529 Plans

For many parents, grandparents, and friends, a 529 plan can be a great way to save for future education expenses.?May 29 (5/29) is recognized as National 529 College Savings Plan Day, and it is important to educate yourself about 529 plans.?

A 529 plan is a state-administered, tax-advantaged investment vehicle designed to save for college.?With this unique plan, investors can experience tax advantages and estate planning benefits currently unavailable with other education planning strategies. ?

Contributions to a 529 Plan grow tax-free so long as the funds are ultimately distributed to pay for the plan beneficiary’s qualified education expenses. While there are no federal tax deduction for making 529 plan contributions, some states may offer some sort of state tax deduction.?Some states even allow state tax deductions for contributions made to another state’s plan.??

Prior to 2018, this tax incentive was only available if the plan was used to fund the beneficiary’s post-secondary education. Under the Tax Cuts and Jobs Act of 2017, 529 Plans can now also be used to cover up to $10,000 of a child’s K-12 tuition.?It is important to note, however, that some states have not updated their laws to include K-12 tuition as an eligible 529 Plan expense. To avoid potentially significant negative tax consequences, be sure to discuss your state’s laws with your qualified tax professional prior to using your 529 Plan for this purpose.

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While K-12 qualified education expenses are limited to tuition only, the rules for post-secondary qualified education expenses are more expansive. Qualified post-secondary education expenses that can be covered by a 529 Plan include tuition and fees, books, supplies (including computers and computer supplies) and room and board, limited to the greater of:

1)?????The allowance for room and board included in the school’s cost of attendance for federal financial aid calculations; or?

2)?????The actual amount charged if the student is living in housing operated by the educational institution.

Save your receipts! It may be helpful to separate these qualified purchases from other non-qualified purchases by running separate transactions at the checkout register. ?A 529 account owner can retain complete control of the account, including distributions.

If a beneficiary of a 529 receives tax-free educational assistance, such as a Pell Grant, tax-free scholarship, tuition discount, or tax-free employer educational assistance program, reduces the amount payable from a 529 Plan. For example, if the cost of one semester of classes is $10,000, and the plan beneficiary receives a tax-free scholarship for $8,000, only the remaining $2,000 is eligible to be paid using the 529 Plan.

Providing for the education of loved ones is an attainable goal.?May 529 Day may be the time to start planning for education expenses.

Investors should consider carefully the investment objectives, risks, charges, and expenses association with a 529 Plan before investing or sending money.???The official program offering statement, which includes information on municipal fund securities, is available from your Financial Advisor and should be read carefully before investing.?The value of a 529 account may fluctuate, and there is no guarantee that any investment portfolio will achieve the stated goal.?Your investment may be worth more or less than its original value.

Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to 10% federal income tax penalty, State tax treatment may differ.?Investors should discuss their particular situation with a tax professional.

Article provided by Bryan A. Ruder, CFP?, MSPFP, AAMS?, AIF?, AWMA?, CRPC?, MPAS? , a First Vice President/Investments, with Stifel, Nicolaus & Company, Incorporated, Member SIPC and New York Stock Exchange, who can be contacted in the Evansville office at (812) 475-9353 or [email protected].