A 529 plan is a useful way for parents and other family members to help pay for a child’s education. They can also be used as estate planning tools for grandparents who want to help their grandchildren with a college savings plan.
As financial advisors for education planning in Phoenix, we can help you set up a 529 plan to help save for college.
WHAT IS A 529 PLAN?
A 529 college plan will come in one of two forms: a prepaid tuition plan or a savings plan that allows for after-tax contributions. Both are great options if you are looking to start to save early for your child’s college education.
While all 50 states offer 529 plans, the tax implications will differ for every state. Check with your home state and what tax-advantaged benefits they offer to plan accordingly.
A FLEXIBLE OPTION
A 529 plan offers substantial flexibility for the account owner regarding who can use the plan and when. For example, if the designated child decides not to go to college, the account owner can change the beneficiary.
Once the beneficiary graduates or leaves college, you are under no obligation to close the account, either. The plan will hold assets indefinitely, as long as a living beneficiary is listed. This means that the original beneficiary could have a change of heart and attend college later on.
You even have the option to name yourself as the beneficiary if you decide to go back and attend school.
Unlike other plans, such as Coverdell Education Savings Accounts, a 529 plan has no income or age limits and no annual contribution limit.
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NOT JUST FOR COLLEGE
Though 529 plans are typically associated with university education and the tuition and fees that come with it, they can also be used for private k-12 tuition as well.
This expansion of the plan was introduced in 2017 as part of the Tax Cuts and Jobs Act. These new rules allow 529 plan distributions in apprenticeship programs, which are considered a qualified higher education expense as long as the apprenticeship is registered and certified with the Department of Labor.
REPAYING STUDENT LOANS
The 529 plan was expanded yet again in 2019 with the passing of the SECURE Act, which allowed beneficiaries to pay off up to $10,000 in their student loans and an additional $10,000 in student loans for each of their siblings.
GETTING STARTED WITH A 529 PLAN
A 529 plan can be an excellent tool to help you save for the unrelenting rise of college costs. As financial advisors in Flagstaff, we are happy to help you find the right 529 Plan for your family so you are ready when it’s time for your beneficiaries to hit the books.