7 Benefits You Didn’t Know About 529 Education Savings Plans (But You Should)
Only about 35% of Americans have heard of 529 plans, according to the Education Savings Plans Network. Of these, barely one in four associates the plans with education savings. Participants might recognize tax-deferred savings as their primary benefit and tax-free withdrawals for qualifying higher education expenses. Perhaps a few recognize state tax incentives such as tax deductions, credits, grants, or exemption from state school financial aid in some states (check your state!) .
But education savings programs offer many more benefits than just tax benefits. Much less likely given the limited knowledge of the 529s that the average person understands some of their more subtle benefits.
1) Registered apprenticeship programs are eligible
You can make qualifying withdrawals from a 529 plan for registered apprenticeship programs. There are more than 24,000 apprenticeship programs nationwide, according to the US Department of Labor. The programs cover a wide range of industries, from healthcare to engineering and manufacturing, among others, with an average annual salary for those who complete their apprenticeship of $ 70,000.
2) International schools are generally qualified
Over 400 schools outside the United States and its territories are considered Qualified Higher Education Institutions, meaning you can make tax-free withdrawals from a 529 plan for qualifying expenses in those colleges. Your beneficiary may still be attending Oxford or the University of Toronto and be eligible for tax-free distributions. You can find the full list of over 6,000 schools from the US Department of Education.
3) Sabbaticals and college credit classes for high school
Some gap year programs have partnered with higher education institutions to receive funding from 529 accounts, including some international and domestic gap years, outdoor education, study abroad , wilderness survival, sustainable living professions and artistic programs. Jason Stout of 529 Advantage explained, “These programs prepare you for life in ways that college doesn’t.”
Data from a recent Sabbatical Year Association The survey indicated that program participants tended to perform better once they started college, and feedback from alumni was overwhelmingly positive about their gap year experiences, regardless of the program they have chosen.
More and more colleges are also offering gap year programs directly. Between 90 and 130 students defer enrollment at Harvard College to participate in a gap year, which the school encourages. Many other colleges have similar programs, from Princeton to Tufts, and the programs vary widely. “When you look at the outcome, it’s that personal growth and confidence that will allow the student to enter college and graduate on time,” Stout said.
In addition, elementary school students over the age of 14 can use 529 funds for college credit courses, if applicable. Brown, Cornell, Georgetown, and many other colleges offer these programs, potentially allowing the student to graduate earlier.
4) You don’t use it for college? Get your money back
Normally, an ineligible withdrawal from a 529 plan is subject to earnings tax plus a 10% penalty. However, if your beneficiary meets certain criteria, it is possible to avoid this 10% penalty by changing the tax-exempt regime to a tax-deferred regime. For this, the beneficiary must …
- … receive a non-taxable scholarship or grant. In this case, you can withdraw an amount equal to the grant without penalty in the year the scholarship or grant is awarded.
- … attend an American military academy.
- … Died or became disabled. Note also that 529 assets can be grouped together in a “ABLE” account for eligible people.
- … Received assistance under an eligible employer-sponsored education savings program.
If you think any of these situations may apply to you, consider consulting a financial professional for advice.
If neither of the above applies, you can still get your money back. 529 plans are technically revocable, which means you can void the giveaway and withdraw the assets in the account owner’s estate. This has tax consequences, including an income tax plus a 10% tax penalty. However, for grandparents who want to reap the benefits of giving without losing control over assets in the event of unforeseen financial hardship, 529 plans offer unique versatility among investment vehicles.
5) Private lessons from Kindergarten to Grade 12 are eligible
529 withdrawals can be used for up to $ 10,000 in tuition in private schools K-12. Additional expenses such as computers, supplies, travel and other costs are not eligible.
6) repay your student loans
Many families take out student loans even when they have enough savings, unsure whether their savings will be sufficient and eligible for assistance. For those who graduate with some cash in their 529 account, it can be used up to $ 10,000 for some student loan repayments.
7) They are one of the best estate planning tools
Contributions to a 529 plan are considered completed gifts to the beneficiary and can be “superfunded” up to $ 75,000 per beneficiary in a single year, effectively using five years of annual tax exemption on donations to the beneficiary. ‘advanced. For retirees with large RMDs (minimum distributions required) from qualified accounts such as 401 (k) and traditional IRAs, the 529 plan offers high contribution limits for multiple beneficiaries while retaining control of assets for the duration. life of the account owner. Assets are also contracted out on death, avoiding probate and inheritance tax.
Brian Boswell is a registered representative and offers securities through MML Investors Services, LLC. SIPC member. www.sipc.org, 101 Federal St, Suite 800, Boston, MA 02110. Tel. : 617-439-4389. CRN202407-423285.