By Jamie Dushin, Accounting Manager, Achieve Montana

December 22, 2020

 

The holiday season might not seem like the right time to focus on your taxes. Actually, the end of the year is the perfect time to think about them; especially all the tax benefits that go along with opening and contributing to a 529 account to save for a child’s education. 

While some of the tax benefits vary from state to state, all 529 plans share the same federal tax benefits, including:

  • Earnings grow deferred from federal taxes.
  • Withdrawals are free from federal taxes when used to pay for qualified education expenses including tuition, books, fees, supplies, required equipment, and room and board at any accredited college or university in the U.S., plus some schools abroad.
  • Most states also allow qualified withdrawals to be exempt from state income taxes as well.
  • Accelerated gifting lets you contribute up to $75,000 per beneficiary in a single year ($150,000 for married couples making a proper election) and take advantage of five years’ worth of tax-free gifts at one time provided you don’t make additional gifts to that beneficiary for five years. Make sure to check with your tax advisor or estate-planning attorney.

Contributions can be made to a 529 plan at any time. However, to take advantage of full in-state tax benefits for the 2020 tax year, check with your 529 plan and the state where you pay taxes to make sure you make your contributions on time.

Of course, the real advantage to opening or adding money to a 529 account is the impact it can have on your child’s educational opportunities. Accounts are simple to open, easy to understand, and most states offer low-cost plans with very low minimum contributions.

Get more details about the tax savings offered by 529 savings plans by visiting the College Savings Plans Network (CSPN). There you will find links to 529 plans offered around the country and learn about any special tax benefits available in your state.

 

About the Author

Jamie Dushin is an Accounting Manager at Achieve Montana, Montana’s official 529 Savings Plan. To learn more about them, visit achievemontana.com.