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With the average cost for four years at a private college climbing to six figures, its little wonder that many American families are concerned about their college savings. A 529 College Savings Plan is an investment program designed with one basic purpose in mind - providing families with an easy and effective means to save for future college costs.
Saving for your child or grandchild's higher education is one of the most important investments you can make for his or her future. To make saving for college easier, the Qualified Tuition Program or 529 plan was created. Named after section 529 of the Internal Revenue code, it is a federal-income-tax-free savings plan to be used for qualified educational expenses.
The Tax Cuts and Jobs Act (TCJA) of 2017 expanded the use of 529 education savings plan funds from covering only qualified college expenses to also include eligible private, public, or religious elementary or secondary school expenses.
There is a lot to be said for opening a 529 plan for a child's education. Below are a few of the benefits offered by these plans, and how you can best take advantage of them.
Enjoy federal tax benefits - While you can't take a deduction for contributions to the 529 plan on your federal income tax return, investment returns within the plan grow tax-free. In addition, all distributions made from the plan for qualified higher education costs are also free of federal taxation, provided they are less than or equal to the adjusted qualified education expenses.
Your state may offer tax benefits - Many states also offer tax breaks in addition to the federal tax benefits mentioned above.
Easy enrollment and maintenance - Your 529 plan can provide a convenient and hassle-free way to save for college. You can even use automatic deposit. Your plan is managed by an investment firm that handles the plan's financial management.
You control the funds - As the benefactor of the 529 plan, you maintain complete control over the account. This way, you can make sure the money is used as intended for educational purposes, and you decide when and how it is to be spent by your beneficiary. Should you not wish this responsibility, as an alternative you could designate a grandchild’s parent as the owner of the account.
Disabled Beneficiary – In the event that the beneficiary is disabled and the funds are not utilized for education, federal law allows the funds in a 529 plan to be rolled over tax free to an Able Account for the benefit of same beneficiary. An Able account is a tax-advantaged savings account available to individuals diagnosed with significant disabilities before age 26. Individuals with Able accounts are able to maintain eligibility for government programs like SSI and Medicaid. The funds in ABLE accounts are invested and grow tax-free as long as distributions are for qualified disability expenses, which include education; housing; transportation; employment training and support; assistive technology and related services; personal support services; health, financial management and administrative services; legal fees; expenses for ABLE account oversight and monitoring; funerals and burials; and basic living expenses.
Interested? Give us a call and we can provide you more details on how to set up a 529 college education plan for your child or grandchild.