- What is a 529?
- Simply put, a 529 is a tax-advantaged education savings plan. Investment gains are tax-deferred and withdrawals are tax-free for qualified education expenses.
- It can be used for student loan repayment up to a $10,000 lifetime limit per individual.
- Up to $10,000 annually can be used toward K-12 tuition per student.
- can be used to pay for apprenticeship programs.
- It can be transferred to another eligible beneficiary.
- If the beneficiary receives a scholarship, the same amount can be withdrawn without penalty (you only pay for the taxes of the withdrawn amount).
- The Grandparent Loophole: If a 529 is owned by the Grandparent, it will not impact FAFSA/aid eligibility when applying for college/university.
- If your child doesn’t end up going to college:
- You can transfer the account to a relative/sibling, etc.
- You could withdraw the money by paying a 10% penalty on top of paying federal income tax at your tax bracket for that year.
- Starting 2024, plan beneficiaries can roll up to $35,000 into their Roth IRA as long as the account has been open for at least 15 years (annual contribution limits apply).
- There are so many 529 plans and there is a huge misconception that you are required to open a 529 plan within your state. This is NOT true. You can contribute to any plan from any state as long as the plan doesn’t have a residence requirement. However, tax rules from your state still apply. You can view a variety of 529 plans here:
- Prioritize saving for your OWN RETIREMENT before saving towards a 529 account for your child.
I am not a tax professional, so I cannot recommend a specific plan for you. I can only share what plan I am contributing to for my children.
I chose the New York Plan because it has the lowest fees out of all the 529 plans I researched. I simply went to https://www.nysaves.org and created an account and established monthly automatic payments. It also auto-generates a code for friends and family to contribute to the plan for any special occasions for the child.