For many, 5/29 is just another day in the month of May and probably overlooked due to the Memorial Day holiday. However, for the financial industry, 529 takes on a different meaning. Many people are unaware of the 529 College Savings Plan, a tax-advantaged account that families can open to save for their children’s or grandchild’s college education. My three children are beneficiaries of 529 College Saving Plans. As an advisor and father, I am concerned that the nation’s student debt has nearly doubled since 2007 to $1.1 trillion. Student debt continues to grow rapidly as many colleges continue to jack up prices since anyone can be granted endless student loans.
College Cost Calculator – Determine how much you’ll need to save.
Some of the benefits include:
- In Illinois, resident contributions are state tax deductible up to $20,000 per year, which gives residents up to a $1,000 in tax savings at the current 5% income tax rate.
- *Withdrawals used to pay for Qualified Higher Education Costs are free from federal and Illinois state income tax. These expenses include tuition, fees, books, supplies, and equipment required for enrollment at a qualified institution of higher education. Room and board is considered a qualified education-related expense if the student is enrolled on at least a half-time basis.
- You, the owner, control the account including the investment decisions and the account beneficiary, which can be changed.
- The beneficiary’s money can be used both in and out of state schools, public or private.
- Contributions are also flexible. I have money added every month (otherwise, I probably would find something else to spend it on), but you can also add lump sums and contributions make a great gift.
- Grandparents are setting these up as gifts to their grandchildren and making themselves the owner. That way, in the unlikely event they need any of the money back they can get to it*.
As you watch your children, or grandchildren grow, it’s vital to save early and often if you want to help them have the opportunity to afford to go to college. You can help prepare them for sky-rocketing college costs with a 529-qualified savings program. If you are interested in learning more about a 529 College Savings Plan or know someone who may be interested, please feel free to contact me!
It’s never too early to start saving for a child or grandchild’s education.
* If the money is used for other purposes, the earnings portion of the withdrawal is subject to federal income tax as well as any state income tax and may be subject to a 10% federal tax penalty.