As hearts fill with gratitude for blessings of all types and sizes this time of year, parents of soon-to-be college students who had the foresight to plan in advance for upcoming education expenses likely have something additional to include on their gratitude list.
Here are five 529 plan attributes that make them worthy of appreciation this time of year and as college nears:
1. Tax-Free Growth
529 plan tax advantages put them in a league of their own. Unlike more traditional savings and investing accounts where earnings are subject to annual taxation, 529 plan contributions can grow in value without being taxed and when withdrawn and used for a wide range of qualified expenses, 529 plan account earnings are never taxed. These tax savings can lead to more money to cover college costs.
2. Wide Array of Educational Options
529 plans cover so much more than just traditional four-year colleges. Funds from a 529 plan account can be used for community colleges, trade schools, vocational programs, and graduate and professional programs as well. And the coverage goes well beyond tuition. Books, supplies, and even computers required for enrollment or attendance are eligible expenses and when attending at least half-time, the cost of room and board can be covered as well. This flexibility makes the 529 plan a valuable savings vehicle, regardless of the educational path a child chooses.
3. Flexibility if Plans Change
If plans or circumstances change, 529 plans provide plenty of options. For instance, if a child has a temporary change of heart about pursuing education after high school, the funds may remain invested indefinitely in the 529 plan account, able to keep growing in value on a tax-deferred basis while alternative paths are pursued, or while a much-needed pause is taken to think things through. Additionally, if a future use is not foreseeable, the account beneficiary can also be changed to another eligible “member of the family” of the current beneficiary. This alternative family member, broadly defined to include siblings, step-siblings, first cousins, parents, and more, may use the funds for permitted purposes without any tax consequences or penalties.
4. Account Owner Control
Even though 529 accounts are established for the benefit of a particular future student, the account owner—often a parent or grandparent — retains control at all times over the funds. Unlike custodial accounts, which transfer ownership to the child at 18 or 21 depending on state law, 529 plans allow the adult who established the account to keep a guiding hand over the funds, assuring that the savings will be used for their intended purpose. This means account owners have the flexibility to decide whether and when to disburse funds to cover various costs and need not fear that the child for whom they established the account will access and use the funds for other purposes.
5. Increased Peace of Mind
Having a 529 plan account in place can provide peace of mind for parents and students. Those who have planned ahead and consistently contributed to a 529 plan account may feel more prepared and less panicked as college planning begins and the reality of college costs becomes clearer. Instead of scrambling to find resources or facing the prospect of taking on substantial debt, they can rest easier knowing funds are available to pursue various forms of education at different types of institutions. This level of preparedness allows parents to focus on their child’s future with less financial worry, which may make the college planning process and transition to college a more positive experience for all.
These are just five among many 529 plan benefits for which account owners can feel grateful.
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