The good news is 529 Savings Plans can be both a powerful and flexible tax-free way for families to fund education. You may have heard about the 529, but you may not be aware of some of the more beneficial options and features.
Crowd-fund it. Well, not exactly, but just about anyone in your family can contribute – parents, grandparents, aunts, uncles.
Supercharge it. Federal law allows any qualifying family member to gift any 529 beneficiary up to $15,000 per year and not get hit with a gift tax. That means if the beneficiary has two parents, each can contribute $15,000 per year for a total of $30,000. Plus, in the first year of the plan, anyone can contribute up to 5 years worth of contributions (called the “5-year election”) up to a maximum total contribution of $150,000 and still avoid it being taxed as a gift as long as the person doesn’t contributes again for the subsequent 4 years. And like most other savings/investment plans, more money up front, usually means significantly more money for the student later.1
Use it to fund K-12 Private schools. A new feature since 2019, you can now use a 529 to pay up to $10,000 per year for tuition for kindergarten through high school. This gives young couples even more incentive to enroll in a 529 plan even earlier than they might otherwise.1
Use it to fund K-12 Private schools. Once one beneficiary has completed their education, the plan can switch to another beneficiary. Effectively, the plan can be passed from one student to another, for generations! For the more affluent among us, a 529 can become a consideration when planning their legacy.
You can be both the contributor and the beneficiary. Usually, folks think of a 529 plan as a way to fund the education of their children and grandchildren, but yes! — you can also use it to fund your own academic pursuits!
Tax Deferred Growth and Deductions. Your money can grow tax-deferred, and as long as the proceeds are used to pay for qualified educationexpenses, any withdrawals are tax-free. There are also potential state and local tax deductions. However, it’s important to note that your taxable income is not reduced by contributing to a 529 plan. However, more than 30 states give out tax deductions or credits for contributions.
No income Limits. Unlike a Roth IRA, there are no limits to income for those who can contribute to a 529 plan.
High Limits on Contributions There are indeed limits to how much money can accumulate in a plan. Those limits are determined by the states, but they are all quite high. Georgia and Mississippi have the lowest limits at $235,000, based on the current expected cost to attend the most expensive college in the United States. In NH, the limit is $553,098 per beneficiary. 2
High Limits on ContributionsThere are indeed limits to how much money can accumulate in a plan. Those limits are determined by the states, but they are all quite high. Georgia and Mississippi have the lowest limits at $235,000, based on the current expected cost to attend the most expensive college in the United States. In NH, the limit is $553,098 per beneficiary. 2
Select the State plan that works best for you — Every state offers a plan, and their features, rules and benefits vary. You are not limited to select a plan in the state where you or the beneficiary resides. You can choose a plan in any state and can even have multiple 529 plans in more than one state at a time.
In addition to all these options and benefits, there are two types of 529 plans to consider: prepaid tuition plans and savings plans.