529 COLLEGE SAVINGS PLANS
Save for college with these tax-advantaged plans. If you are a parent, relative, or family friend you can save in a 529 for a future college student's education.
WHAT CAN A 529 PLAN BE USED FOR ?
If money is used for qualified education expenses, 529 plans allow tax-free growth and withdrawals. These expenses may include fees, supplies, tuitions, etc., for universities and colleges. Tax-free withdrawals are also allowed for 529 plans per year per beneficiary for expenses regarding educational institutions K-12.
Student loans, both federal and private can also be paid back by these distribution amounts.
529 COLLEGE SAVINGS PLANS
To save for education in tax-advantaged ways these programs can prove helpful.
Regarding a 529 plan, savings can grow quicker since you are deferring taxes on any investment earnings. Additionally, the distributions from a 529 are used for eligible expenses, and you don’t pay federal taxes.
In general, 529 plans provide tax-advantaged ways to pay for education and supplies. Each state has specific rules and regulations, and some states offer tax benefits to their state residents, but you can choose any state’s plan that you like.
WHAT IS NOT COVERED BY A 529 PLAN?
Since you are deferring taxes on any investment earnings savings can grow much quicker regarding a 529 plan. Distributions from a 529 account are used for eligible expenses and you don’t get to pay federal taxes.
529 plans provide tax-advantaged ways to pay for education and supplies in general. Rules and regulations are different in each state and some states also offer tax benefits to residents of their state. You can choose any plan you like.
ARE 529 PLAN CONTRIBUTIONS TAX-DEDUCTIBLE?
The amount deposited to a 529 program is an after-tax amount and non-deductible on federal income taxes. State income tax deductions or credits for these plans are allowed by some states. You will need to participate in your home state’s 529 plan if you opt to do this.
Withdrawals from 529 accounts for qualified expenses do not get taxes and funds grow tax-free in 529 accounts.
WHAT ARE QUALIFIED EDUCATION EXPENSES FOR A 529 PLAN?
Following are considered qualified education expenses for individuals attending college, university, or any other eligible educational institutions.
Fees and tuition
Supplies and books
Board and room
Computers and related equipment
Special needs equipment and internet access
For payment at k-12 tuition expenses at both public and private schools, the 529 plan provides tax-free distributions up to $10,000 per year, per beneficiary. 529 plan also allows tax-free distributions for student loan repayments up to $10,000 per borrower for the beneficiary and their siblings.
Earning part of a non-qualified distribution will have to be taxed as income. There will be an additional 10% tax penalty. Since contributions were made with after-tax funds, they will not be subjected to taxes or penalties.
CAN I USE A 529 PLAN TO PAY FOR RENT?
If you are at least enrolled part-time then yes. This is a qualified education expense. Usually, 6 credit hours per semester is considered part-time enrollment.
On-Campus students: Rent expenses can not be more than the amount charged by the institution.
Off-Campus students: cost of attendance figures provided by financial aid office in school utilized to determine rent expenses.
HOW DO I USE MY 529 PLAN?
You can usually send payments directly to the account holder, beneficiary, or the school administration when you take withdrawals from your 529 plan. These payments can be made right to the landlord or any other third party sometimes. You are concerned 529 plan will contain a lot more details.
Don’t forget you might want to report contributions and distributions from your 529 plans on your tax return.
GET A 529 QUOTE
WHAT HAPPENS IF MY CHILD DOESN’T USE THE 529 PLAN?
You will have to pay income tax and penalty only on the earnings portion of your non-qualified withdrawal incase the funds from 529 plans remain unused. This penalty charge (subject to state income tax) can be avoided in these conditions if the beneficiary
Received a tax-free scholarship
Dies or becomes disabled
Attends a U.S military academy