The rising cost of higher education is no secret. 529 Plans may ease the financial burden a great education could place on a family. They were introduced to amplify college savings through tax-free investment growth and distribution. 529 Plans allow you to invest with tax free growth, qualified distributions and even some state income tax deductions. In summary, 529 Plans can help you reach a major, long-term financial planning milestone.
I’ve listed three unique 529 applications that may help you maximize their benefit to you and build your existing knowledge.
1. Open a 529 Plan as the Owner AND the Beneficiary
You do not have to have kids or grandkids to utilize a 529 plan - You can even open a 529 plan for yourself. Yes, beneficiaries allowed to contribute to their own account. For example, I own a 529 in which I am also the beneficiary. Although I could use the funds for my education (e.g., MBA Program), I’m actually making the investments for the children I do not have (yet). Once they are born, I can make them the beneficiary as I welcome them into this crazy world. Now, the contributions will have more than the typical 18 years or so to compound and grow.
2. Use it for Kindergarten to 12th Grade Tuition
529 plans are synonymous with college savings because historically, qualified education expenses were only for post-secondary education. However, that is no longer the case. The SECURE Act (2019) changed that, by allowing 529 plan distributions to cover up to $10,000 in Pre-K through 12th grade tuition. Some states limit this amount, so be sure to consult your tax advisor. Private school parents and grandparents rejoice!
3. Each State Has Its Own 529 Plan, Take Your Pick
Believe it or not, each state provides their own ‘sponsored’ plan with a preferred provider. For example, in Michigan, we use TIAA-CREF; in New Hampshire, it’s Fidelity; in Virginia, it’s American Funds. Like any investment vehicle, these plans are not created equal. Considering the investment time horizon of a 529 plan is often 10+ years, the investments you choose can have a material outcome on your results. Consult your tax advisor on this one. You can lose your state’s tax deduction by contributing to a different state’s plan. However, the benefits you may receive from a higher quality plan can be well worth the hassle.