What is a 529?

Tax-free education savings explained.

Saving With Benefits

A 529 plan is a college savings plan that offers tax and financial aid benefits which help everyday families save for education costs. They may also be used to save and invest for K-12 tuition. Much like a Roth IRA, contributions to a 529 plan are post-tax and are not deductible from federal income taxes. The 529 program was created in 1996 as part of the Small Business Job Protection Act. The numbers ‘529’ come from section 529 in the IRS tax code, which was created to incentivize taxpayers to save for college by allowing their earnings to accumulate tax-free.

Want To Learn More?

We have many resources for you to learn about 529 plans.
Watch the video above or click on a topic below to read more on our blog:

What Is A 529 Plan? Tax-Free College Savings Explained

List of “Qualified Expenses” For 529 Plans

What Happens To My 529 Plan If My Child Does Not Go To College?

Frequently Asked Questions

What is a 529 plan?
A 529 plan is a tax-advantaged account designed to help families be financially prepared for the cost of education. Usually operated by an educational or state institution, they are named after Section 529 of the Internal Revenue Service Code, which defined them in 1996. While some 529 plans have residency requirements, most are open to all U.S. residents and resident-aliens. They have no income requirements, age limits or annual contribution limits and earnings are not subject to federal income tax when used for qualified higher education expenses.
What Are The Benefits Of A 529 Plan?

Any earnings on contributions invested in a 529 plan grow tax-deferred and may be withdrawn tax-free when used for qualified higher education expenses.

Who Can Open A 529 Account?
Anyone! You can open an account for your child, grandchild, niece, nephew, and even the neighbor’s kid – as long as you have their social security number. You can even open an account for yourself if you want to save for your own education or pay your current student loans down.
How much money can I put in a 529 account?
As of 2021, you can continue to make contributions to your SavvyFi 529 account until your beneficiary’s account balance exceeds $510,000. This number may change in the future based on changes in the cost of higher education.

Federal tax rules allow a person to give up to $15,000 a year ($30,000 for married couples) without incurring a gift tax. However, a provision for 529 plans allows a person to contribute $75,000 ($150,000 for married couples) in one year by treating the contribution as if it were made in equal installments over five years.

What If My Beneficiary Does Not Go To College?

If the beneficiary your saving for does not attend college, you have a number of options:

1. Defer Use Of Funds

You can choose to put off the use of the funds you have accumulated in your 529 account indefinitely, just in case your child decides to go to college later.

2. Transfer Funds To Another Beneficiary

At any point, you can transfer the 529 funds to another beneficiary as long as the new beneficiary is a “member of the family” of the original beneficiary. For example, if your oldest child decides not to go to college, you are free to transfer the money you saved for them to the account of your younger child.

3. Take A Refund

You are free to simply withdraw the money you have saved from your 529 account at any point. However, if funds are withdrawn from a 529 program to be used for anything other than qualified higher education expenses, the earnings portion of the account will be subject to federal income tax as well as a 10% tax penalty.

Can I Roll Over Money From Another 529 Program To SavvyFi?
Yes. You may roll over a portion or your entire account balance from another qualified 529 college savings plan. This is usually accomplished through a simple e-signature.
What Expenses Can 529 Funds Be Used For?

Money saved in 529 plans maintains its tax-free status so long it is used for “qualified higher educational expenses.” Expenses falling under this category are as follows:

  • Tuition
  • University Fees
  • Books
  • Room & Board (on or off-campus)
  • School Supplies
  • Necessary Equipment
  • K-12 Tuition
  • Student Loans

Read through IRS Publication 970, and/or consult a tax advisor for more information about the treatment and tax-implications of withdrawals from 529 plans.

What if my child earns a scholarship?
You can withdraw the amount of the scholarship award from your 529 plan account without penalty; however, federal and state income taxes on the earnings still apply.

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