By Robert Trishman, Editor, my529
December 20, 2022
529 plans are specially designated to use when saving for a child’s future higher education goals. Federal and, in some cases, state tax benefits for account owners are some of the important advantages of using a 529 plan.
Earnings in a 529 account grow tax-deferred. Therefore, earnings are not depleted by taxes.
Withdrawals from a 529 account are tax-free when used for qualified education expenses, which include:
- Tuition and mandatory fees.
- Books, supplies and equipment required for enrollment.
- Computers, related software and equipment, and internet service.
- Room and board for students enrolled at least half time.
- Services required for a student with special needs to attend a post-secondary school.
- K-12 tuition expenses of up to $10,000 per year per beneficiary (from all 529 accounts) at public, private, or religious schools.
- Payments up to certain limits on qualified education loans (student loans).
- Registered apprenticeships.
Using 529 funds for nonqualified expenses may incur a federal tax penalty.
State income tax benefits
Many states offer income tax benefits with 529 plans. For example, Utah residents can claim a 4.85% tax credit on contributions up to certain limits to my529. Some states allow residents to claim a tax credit for contributions to any state’s 529 plan. Check with the plan in your state to see if it offers state tax benefits.
End of the year
If you’re looking to open a 529 account or already own at least one, keep the end of the year in mind. For benefits to count for the 2022 tax year, be sure your 529 plan of choice receives contributions and other transactions by set deadlines.
Tax advantages are one of many reasons to use a 529 plan to save for your children’s future college costs. Find out more by looking up your state’s 529 plan and learn how you can start saving.
About the author:
Robert Trishman is an editor for my529—and he owns my529 accounts for each of his three sons. my529 is Utah’s official nonprofit 529 educational savings plan. It is the nation’s third-largest direct-sold plan with over 400,000 accounts and billions in assets under management. my529 has been helping families across the United States invest for higher education for more than 20 years. Accounts are free to open and require no minimum deposit.