A 529 plan is a college savings plan that offers tax and financial aid benefits that may also be used to save and invest for the tuition not only regarding college but also the tuition of kindergarten through senior year of high school. 

There are two types of 529 plans; college savings plans and pre-paid tuition plans:

College Savings Plans work similarly to a Roth 401(k) or Roth IRA. Investing after-tax contributions in mutual funds or similar investments. The 529 college savings plan have many options to choose from. The 529 plan account will fluctuate in value due to the performance of investment options. By reviewing our quarterly 529 plan performance, rankings see how each 529 plan’s investment options are performing.

Pre-paid Tuition Plans allow pre-paying all or part of the costs of an in-state public college education option. They can be converted for use at private and out-of-state colleges. Private College 529 Plan is a different pre-paid plan for private colleges, sponsored by more than 250 private colleges. Almost every state has at least one of these plans; there are multiple groups of private colleges and universities operate 529 programs — each taking their own twist and making their own version of the saving plan. Explicitly dealing with state-run 529s each will offer at least one or more 529 plans and decide what benefits it will provide, researching said features and benefits of plan before investments. 

Benefits: Tax: Uses

Earnings in 529 plans accumulate on a tax-deferred basis allowing for distributions to not be taxed federally when used for qualified higher education expenses. When the plan satisfies basic requirements, the federal tax law provides exclusive tax benefits, such as a 5-year gift tax averaging and tax-free qualified distributions. Varying from state to state some offer state income tax incentives to investors; state income tax deductions and tax credits for contributions to the state’s 529 plan. When searching for the 529 plan that fits your needs, look into programs from other states. You are not limited to the plans that are offered in your state, and most of the time, apply them to college costs at any qualified college in the nation. Most plans allow your choice of college and are not affected by the state that sponsored your 529 college saving plan. 

The money that is invested in each plan is yours. The money invested is yours. You are able to use money from your plan to pay for things such as room and board, when qualifying certain criteria, such as When the student is enrolled at least half-time, six credit hours per term (for most colleges). The amount deemed qualified varies depending on where the student is living on-campus or off-campus, which when on campus can not exceed the schools given amount. You are free to withdraw funds at any time, but this does, in fact, come at a cost. If withdrawn the money that has been earned are subjectable to a ten percent increased rate.

Using a 529

To start withdrawals from a 529 plan, most plans allow you to distribute the payments to the account holder, the beneficiary, or the school. Some plans may allow you to make a payment directly from your 529 account to another third party, such as a landlord. If the plan goes unused, there are penalties such as taxes on the earnings for a non-qualified withdraw.

 Exceptions to penalty:
  • The beneficiary receives a tax-free scholarship
  • The beneficiary attends a U.S. Military Academy
  • The beneficiary dies or becomes disabled
Form money not used from a plan:
  • Change the beneficiary to another qualifying family member
  • Hold the funds in the account in case the beneficiary wants to attend grad school later
  • Make yourself the beneficiary and further your own education
  • Roll over the funds to a 529 ABLE account (savings account specifically for people living with disabilities)
  • As of January 1, 2018, parents also have the option to take up to $10,000 in tax-free 529 withdrawals for K-12 tuition
Ready to start saving?

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