By Jillian Ziegler, Editor, my529, Utah’s educational savings plan
It’s Valentine’s Day, and 529 plans have a lot on offer for anyone looking to save for future qualified education expenses for themselves or loved ones. Love is in the air this time of year — so why not develop a love of saving for higher education?
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So, what is a 529 plan — and what exactly is there to love?
529 plans are sponsored by states and educational institutions and are authorized by Section 529 of the Internal Revenue Code to offer a tax-advantaged way to save money for education.
Account owners can choose a 529 plan they like and contribute however much or little funds as they want. The 529 plan will keep those funds in investments, and come time to pay for school, any earnings from it won’t be subject to federal or state taxes when used for qualified education expenses.
After all, the heart wants what the heart wants — and when it comes to choosing between the chance of more loans or the chance to save come enrollment time, the solution to this love triangle is clear.
You might feel like “qualified education expenses” is pretty limiting, but there are a broad range of career paths and needs that 529 funds can help you or your beneficiary achieve.
For starters, these qualified education expenses cover tuition at eligible educational institutions that qualify for federal financial aid — most colleges, universities, community colleges and more. This even applies abroad; if your beneficiary wants to head out for an international education, they may be able to use their 529 funds for tuition at many institutions around the world.
Even if tuition is already covered by 529 funds, other savings or scholarships, your student still has plenty of options to take advantage of those tax-free qualified withdrawals. Room and board for students enrolled at least half-time, books and materials, some fees, computers, internet provider service and more.
Is the account’s beneficiary not interested in a four-year collegiate education? No problem. Funds from a 529 account can be used for tuition and materials for registered apprenticeships and post-secondary credentials, including qualified trade schools, technical colleges, qualified beauty schools — and that’s only scratching the surface.
On top of that, if you end up needing some funds to help pay for your beneficiary’s K-12 education, 529 plans can cover up to $20,000 dollars of that annually too! If you need to dip into the savings before high school graduation, you can grab books, certain materials, and qualified educational therapy and tutoring costs outside the home. If there’s private school tuition on the table, 529s can go toward that too.
During your beneficiary’s high school years, 529s can cover things like admission fees and placement tests, as well as dual enrollment in a college or trade school.
529s can’t be used for everything — unfortunately, every love story needs a little heartbreak — but the list of qualified education expenses is long enough that this blog hasn’t even covered all of it.
Should an account’s beneficiary end up not needing all the funds for qualified education expenses, that love need not be lost! There are plenty of options to keep the savings train rolling.
Funds can be reassigned to a different beneficiary at any time if they are a member of the same family as the current beneficiary and under age 19. Alternatively, subject to IRS limits, the funds may be transferred on a tax-free basis to another state’s 529 plan, an ABLE account or a Roth IRA for the beneficiary. It’s easy to incorporate your 529 plan into estate planning too, helping build a legacy of education for future generations.
One more thing to love about 529 plans is how easy it is to gift to one.
If your beneficiary’s friends and relatives want to eschew the candy hearts this year (or even supplement them), gifting to their 529 account is a quick way to make a real impact on their future — spreading the love for years to come.
But how to pick your sweetheart 529 plan? Everyone has their own must-haves when on the investment plan market, and Morningstar is likely to have you covered with their annual ratings of 529 plans nationwide. Whether you’re interested in low fees, high overall ratings or even state tax benefits, this guide is a great place to start.
So, this Valentine’s Day, look into opening a 529 plan — and maybe Cupid’s arrow will end up giving you a lifelong love of saving for education.
After all, as the classic Valentine’s poem goes:
Roses are red
Violets are blue
Savings can help
when tuition is due!
About the author:
Jillian Ziegler is an editor at my529, Utah’s educational savings plan. She has a cat named Pippin.
*Carefully read the Program Description in its entirety for more information and consider all investment objectives, risks, charges and expenses before investing.
A Morningstar Analyst Rating™ for a 529 college savings plan is not a credit or risk rating. Analyst ratings are subjective in nature and should not be used as the sole basis for investment decisions. Morningstar does not represent its analyst ratings to be guarantees. Please visit Morningstar.com for more information about the analyst ratings, as well as other Morningstar ratings and fund rankings.