529 plans, also known as Qualified Tuition Plans, are not a new thing but they have certainly evolved since their introduction in 1996. These savings plans for higher education are attractive for many reasons and they have a number of tax benefits. Earnings grow federal tax-free and are not taxed when withdrawn for educational expenses. In addition, many states offer a tax deduction for contributions made to state-managed 529 plans during the year. The IRS website has a Q&A page on 529 plans that answer almost any question in a very simple manner.
Anyone can utilize a 529 plan regardless of income or age! At this point, almost every state offers at least one 529 plan but you are not limited to the plans of your state. To see what is available and determine the best 529 for you, check out savingforcollege.com. Many plans charge administrative and maintenance fees, application fees, and a number of other fees. Make sure you familiarize yourself with the plan’s fee structure before committing.
Who Can Make Contributions
Anyone can make contributions to your 529! This can be helpful in the case of aunts, uncles, and grandparents who like to make donations towards college. Contribution amounts are limited to the amount needed to cover the financial costs of schooling. If you make a gift or combined gifts greater than $14,000 to one beneficiary in a year, you might be subject to gift taxes.
Private School Use
With the tax law changes from 2017, there are actually some good additions to the depth of 529 plans. One of these benefits is being able to use 529 plans to cover private elementary through high school tuition up to $10,000 per year. Previously 529 plans were only to provide for secondary schooling. This change definitely makes life easier for anyone struggling with the costs of private schools for younger children.
Due to the nature of 529 plans – with so many different options available combined with so many unique situations encountered by college students, the questions and answers surrounding these plans are limitless. If you have additional questions about 529 plans and their impact on your taxes, we encourage you to reach out to us here.