Why You Need A College Saving 529 Plan

The idea of the 529 college savings plan was created in 1996 by Congress. This is a savings plan designed to be used for the tax advantages of saving for a child’s educational expenses. 

Anyone can open one of these accounts for a child and can immediately begin to take advantage of the power of compound interest by investing in stocks and mutual funds. Within these plans, the available investments include age-based options and conservative stocks and bonds. 

Use A 529 Plan For Private School!

Due to tax law reform, residents of specific states are able to make a maximum annual withdrawal of $10,000 to pay tuition expenses for Kindergarten through 12th grade!

Some states allow you to deduct your 529 contributions from your taxed reported income each year. Keep in mind, you can only claim deductions in the state of your residence.

Tax Benefits By State 

Arizona: Deduct up to $2,000 single or $4,000 married contributions on your taxes. (Any state 529 plan)

Arkansas: Deduct up to $5,000 single or $10,000 married contributions for instate 529 plans. Deduct up to $3,000 single or $6,000 married contributions for out of state 529 plans.

How Much Can I Put In A 529 Each Year?

The maximum tax-free gift is $15,000 per beneficiary for each contributor for the year 2020. This means a married couple filing taxes jointly is able to contribute $30,000 each year under the federal gift exclusion. 

What Are the Pros and Cons of a 529 Plan?

The pros include:  – The funds in a 529 account will continue to accumulate tax-free prior to a withdrawal. – Depending on the beneficiary’s home state, the funds can accumulate tax-free until a withdrawal is made for qualified higher education expenses. The home state offers slightly different benefits than the other states.

What Are the Pros and Cons of a 529 Plan?

The cons include:   – Future tax regulation changes can impact existing 529 plans and how the money can be used. – 529 plans can be restrictive. Once an investment is made, the funds can only be used for education. – Determining what qualifies as education expenses can be confusing. Dorm rooms are not always included in the price of postsecondary educational institutions or community colleges.

How To Fund A 529 Plan And The Minimum Requirements

There are different options for making a deposit into a 529 plan. The funds can be electronically transferred from a bank account or a paper check can be mailed directly to the 529.

Swipe up now to read the full post!