May 29 is observed across the U.S. as 529 Day or 529 College Savings day. It was introduced to increase awareness of these plans and encourage families to start saving toward future education expenses.
A 529 plan is a type of education savings plan. It is designed to help families save towards future education expenses.
What Is A 529 Plan?
529 plans are poplar tools for investing towards education. These plans are different from other savings plans. 529 savings plans offer attractive tax benefits to make it easier for families to save for future training costs. The tax-free growth and tax-free withdrawals helps parents keep up with the increasing costs of education.
There are two types of 529 plans – 529 savings plan and prepaid 529 plan. With a 529 savings plan, families deposit money into a savings account. Funds in the account grow via different investment options. Distributions from the account are not taxed if used to pay for education-related expenses. A prepaid 529 plan allows families to prepay future college costs at present rates. The big attraction of this plan is it protects parents against future cost hikes.
Anyone can open a 529 savings account for one designated beneficiary. Any family members and friends can contribute to the account. Those funds in the account can only be used to cover the beneficiary’s education costs. This includes tuition, room, board, text books, and other academic expenses. Only funds withdrawn to pay towards the beneficiary’s education are tax free. Funds withdrawn for other purposes are taxed.
Why is it Important?
Every family knows that it’s important to start saving early for their kid’s education. But many don’t know where to start. Traditional savings accounts don’t offer any incentives that encourage parents to save for college. And because 529 plans are not all that common, very few families even know about them. National 529 Day is important because it increases awareness about these plans. On this day, organizations go to great lengths to create campaigns highlighting the features and benefits of these plans. Their goal is to make education more affordable for a larger number of families across America.
11 Things you need to know about education savings plans
1. A Little Savings Goes A Long Way
Saving even a small amount every month can make a huge difference over the tears. Those small amounts add up. When it’s time to pay for college, it can lower your student loan debt significantly.
2. 529 plans aren’t just for a college degree.
The funds cover a wide range of education expenses. Qualified expenses include tuition at 2 or 4 year private or public colleges, vocational school, and technical colleges. Fund eligibility covers K-12 education tuition expenses, and expenses for special needs services.
3. You are not limited to investing in your state’s 529 savings plans.
You can invest in any state’s 529 plan. Eligibility requirements, minimum investments and benefits vary from one state to another. You can compare different states’ plans and choose to invest in any one that works best for you.
4. There are no restrictions as to which state the beneficiary can study in.
The beneficiary can reside on one state, have a 529 plan in a second state, and enroll in a school in a third state.
5. There are no restrictions as to who can be an account holder or who can be a beneficiary.
You can open an account for your children, grandchildren or any other family member or friend. However, every account can have only one beneficiary so each child will have their own account.
6. There’s no maximum age limit for plan beneficiaries.
That means you can even use the funds to cover your own education expenses, or you can use it to pay for an advanced degree or for career retraining. The only restriction is that you must enroll in an eligible school.
7. There are Tax Advantages
Several states offer some sort of state income tax deductions or credits on contributions to a 529 plan. This can play a significant role in selecting a plan, so make sure to check if deductions apply to your situation before choosing a state’s specific plan.
8. Find out about employer contribution matches.
Many employers match employees’ contributions to 529 education accounts up to a certain limit. It’s worth finding out if this is part of your employee benefits package as these additional contribution matches significantly boost your savings.
9. You may be eligible for 529 grants.
That is, if you meet certain income requirements. Some states have grant programs that dollar-for-dollar matches or percentage matches to contributions to 529 accounts. States typically limit this to their own 529 plans. There may be a limit to their contributions too.
10. Anyone can gift.
Once you open a 529 account for a beneficiary, all family and friends can make gift contributions directly into the account. This is a great way to help fund the beneficiary’s education while reducing the amount they’ll need to take in student loans.
11. The account is Transferable.
If the original beneficiary of the account decides not to use the funding, it can be transferred to another beneficiary, so the money is not lost.
Opening a 529 account for a child, relative, or friend is a great way to celebrate May 29. If you’re over 18, open an account for yourself. If you know someone who is saving for college, help contribute to their savings account, and help make college more affordable for them. There are no minimum contribution amounts. The smallest amount can add up over time and make a significant difference.
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