By Jørn Earl Otte, Hartford Funds’ Strategic Marketing Consultant for SMART529 in West Virginia
May 4, 2021
We all intuitively know that the more education or training our children can obtain, the better their chances for a higher paying career. It is also important to point out that successful careers don’t always require a college degree. Skilled labor positions can provide an excellent income. The number of these positions continues to grow. As this continues, more well-trained, skilled workers will be needed to fill these positions. However, almost all of them require some post-secondary education, and that education rarely comes free.
As so many Americans have unfortunately discovered, the dollar figures associated with getting a degree of any type can be astronomical. The cost of higher education has been skyrocketing over the last several years, and there’s no indication that trend will change. As these costs become more prohibitive, families will be looking to find more ways to remove or at least reduce that financial burden.
Here are some facts about 529 plans that hopefully will help you and your family as you seek to fund your loved one’s future education:
- When it comes to opening a 529 account, you do not need to have a particular relationship to the beneficiary. In fact, an account can be opened by anyone for anyone. While accounts are usually opened by parents or grandparents, an account owner can be any individual, corporation, partnership, trust, a state, or a fiduciary.
- Contributions can be made into any account by any interested person. For example, grandparents can contribute into an account opened by a parent and vice-versa. Aunts, uncles, friends and anyone else can also contribute.
- Funds can be used for qualified higher education expenses at any eligible educational institution whether that institution is in state or out-of-state. An eligible educational institution is postsecondary institution like a college or university, and most vocational and technical institutions eligible to participate in the federal financial aid program. This even includes many foreign institutions.
- The moneys from your 529 account can be used for tuition, books, room, board, supplies and more. And now due to recent legislation, funds can also be used for K-12 private school tuition – tuition only – up to $10,000 a year and also for costs associated with apprenticeships. Note: State tax treatment on withdrawals for K-12 and apprenticeship costs vary. Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. You should check with a tax professional. Investment returns are not guaranteed, and you could lose money by investing in a 529 plan.
- Account owners maintain control of the account even after the beneficiary reaches the age of maturity.
- Check with your state’s 529 plan(s) to see what state tax benefits, if any, there may be. Some states allow their residents to apply a dollar-for-dollar deduction to their taxable state income for every dollar they contribute to a 529 plan.
- There is no limit to the number of accounts for any one beneficiary. In addition, anyone can contribute to an account no matter who the owner is. There are no limitations on a person’s income when it comes to opening an account, and contributions to an account can be in any dollar amount up to the maximum contribution limits for each state. However, please consult your accountant or tax professional regarding any federal gift tax implications.
It’s always smart to start saving while your child is young as even small amounts saved on a regular basis can add up over time. But don’t be dismayed if your child is in middle school or even high school. Every single dollar that you save for them today is a dollar that they won’t have to borrow from a lender tomorrow. Unfortunately, many people are of the mindset if they can’t save everything, why save anything. Instead of having an all-or-nothing attitude about savings, adopt a “something is something” outlook. It’s still worthwhile to save for college no matter how little or how much. Many students graduate with heavy debt that takes decades to pay off.
Even if you can’t eliminate student loans for your children, you can lighten the debt load for them after they graduate. Perhaps your investment will pay for all of their books or may even be enough to cover one, two or even three years of college expenses. You can be proud of whatever savings you accumulate knowing that every dollar makes a difference for them and for you.
About the author:
Jørn Earl Otte is Hartford Funds’ Strategic Marketing Consultant for SMART529 in West Virginia.
Please note that this post contains information provided for educational purposes only, and is not intended to provide tax, accounting, investment, or legal advice. Please consult the appropriate professional should you have any questions regarding these issues.