A 529 Plan is an investment account that allows investors to grow money in a tax-advantaged way for a beneficiary of their choosing to use towards their education.
See: How Much You Can Save Long Term by Starting at a Community College?
Find: How to Save for College When Your Kid’s Still in Diapers
Money from a 529 plan can be used to pay for college, K-12 tuition, apprenticeship programs and student loan repayments. After-tax money is used to fund the account, the money grows tax-free and distributions are tax-free to the beneficiary — if used in the right way. The catch with a 529 plan is that the money can only be used for certain education expenses. This can mean tuition and textbooks, but not necessarily a new laptop. Another potential downside is that if a student has a 529 plan, it could mean less eligibility for financial aid.
In order to sign up for a 529 plan, you will need to access your state’s specific site. The Securities Exchange Commission states that 529 plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the IRS Code.
There are two types of 529 plans: prepaid tuition plans and education savings plans. All 50 states and the District of Columbia, the SEC states, sponsor at least one type of 529.
Prepaid Tuition Plans
Prepaid tuition plans let an investor purchase units or credits at participating colleges and universities, usually public and in-state for future tuition and mandatory fees at current prices for the beneficiary. These kinds of plans usually cannot be used to pay for future room and board at colleges and universities and do not allow you to prepay for tuition for elementary and secondary schools.
Education Savings Plans
These plans allow a saver to open an investment account to save for the beneficiary’s future qualified higher education costs — but this plan allows room and board to be included in the costs. Withdrawals from these accounts can be used at any university and sometimes even allow for non-U.S. colleges and universities. These plans can be used to pay up to $10,000 per year per beneficiary for tuition at any public, private or religious elementary or secondary school.
“With the cost of college continuing to rise, having the growth and tax benefits of a 529 make these plans crucial — and complementary — to the additional strategies Americans are using to save for education,” said Steve Rueschhoff, principal at Edward Jones. “While there are a lot of unknowns for parents of college-bound students, like the potential for scholarships, the permanence of hybrid online/in-person education, and any policies offering student debt forgiveness, it’s prudent to save for education to create certainty and confidence.”
As A Strategy
Although there is a limit of $15,000 per beneficiary per year for 529 plans there is NO limit on the amount of 529 accounts you can have. Meaning you can open a 529 for each grandchild you have. Additionally, the law allows each account owner to pay up to five years’ with contributions upfront without triggering gift tax laws, which means that a couple can contribute $150,000 per beneficiary at one time, and for several people.
The wealthy use this to shave down their estates to reach just under the thresholds for taxable amounts. For example, the federal estate tax exclusion is $11.7 million, meaning one can gift up to this amount upon death without the recipient incurring any taxes. If, let’s say, your estate is above the threshold, you can create multiple 529 plans and throw hundreds of thousands of dollars into them in order to shave down the taxable estate far enough where it gets below the taxable amount.
See: Is 529 Plan Loophole Too Beneficial for the Wealthy?
Find: Students Can Save $11,451 Living at Home During College – But at What Cost?
In order to open a plan, you will need to search your specific state’s 529 plan provider, and simply sign up and open an account.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: How To Open A 529 Plan to Save For Your Child’s Education
"save" - Google News
October 25, 2021 at 08:31PM
https://ift.tt/3129hRp
How To Open A 529 Plan to Save For Your Child’s Education - Yahoo Finance
"save" - Google News
https://ift.tt/2SvBSrf
https://ift.tt/2zJxCxA
Bagikan Berita Ini
0 Response to "How To Open A 529 Plan to Save For Your Child’s Education - Yahoo Finance"
Post a Comment