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.
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Frequently Asked Questions
What is a 529 plan?
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Any earnings on contributions invested in a 529 plan grow tax-deferred and may be withdrawn tax-free when used for qualified higher education expenses.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?
How much money can I put in a 529 account?
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 However, if funds are withdrawn from a 529 program to be used for anything other than qualified higher education expenses, the earnings portion of the account will be subject to federal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?
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:
- University Fees
- 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?
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