Well before a child even begins to read, many parents are already dreaming of the day their child goes to college. Unfortunately, many of those thoughts are concerns over how their child will be able to take on the continually rising costs of a degree. As families strategize the best path to help save in advance to lessen or remove the future burden for their kids, the 529 Plan is typically part of the conversation. Lets cover the 5 things you may (or may not) know about 529 Plans:
1. Tax Free Growth: Funds that are contributed to a 529 grow tax free, meaning all growth beyond your contributions will be able to be accessed tax free when used for higher education. Tax free growth can help the funds you can contribute go even further than they would have if a large amount was owed in taxes at distribution.
2. Some States offer a Deduction: Not only do you get tax free growth but if you are a resident of a few lucky states, you may qualify for a deduction on part of your contributions. Each state is different and you must be a resident of that state to qualify for the deduction.
3. K-12 Access: After the Tax Cut and Job Act of 2017 went into place, you can now access up to $10k/ year toward k-12 private education. Considering the main benefit of a 529 is the tax free growth, many people who have ambitions for private primary and secondary education may prioritize accessing the funds for private high school in order to allow for a few more years of possible growth
4. 529s are State Sponsored: Each state offers a 529 plan that is administered through different platforms. While each state has a 529, you are welcome to pick any state plan to participate in. You should consider if there are tax deductible options in your state, if the state plan is particularly restrictive to your state’s schools (there are a few that are), and if you like the platform and fund options.
5. Use it… Don’t lose it: If you do not use a 529, you have a few options. It can be transferred to another child or family member that is one generation away (a niece or nephew perhaps), you can withdraw the money and pay a 10% penalty and tax on the portion that is a gain, or you can avoid the penalty in a few circumstances such as your child attending a US Military Academy or receives a tax free scholarship!
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No investment strategy can guarantee a profit or protect against loss. All investing carries some risk, including loss of principal invested. This publication is not intended as legal or tax advice and is intended for educational purposes only. Financial Representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Chantel Bonneau Stewart is an insurance Agent of Northwestern Mutual Life Insurance Company, Milwaukee WI and a Registered Representative of Northwestern Mutual Investment Services, LLC, Milwaukee, WI. Northwestern Mutual holds a minority equity interest in Trust & Will. Trust & Will is not otherwise affiliated with Northwestern Mutual and the views expressed by Trust & Will do not necessarily represent those of Northwestern Mutual, Chantel Bonneau Stewart or its subsidiaries.