When planning for your own educational future, or that of your child or grandchild, a 529 plan is an option that is worth taking a look at to see if it fits with your overall goals. 529 Plan dollars can be used tax free for qualified higher educational expenses such as tuition, room, board, meal plan, and equipment such as computers. There are new rules that have come out recently which also allow the use of 529 plans for high school tuition and student loan interest.
Benefits of a 529 Plan
- Tax Free Growth if used for qualified educational expenses
- Potential State Tax Deductions
- Flexibility to move between beneficiaries
There are a few downsides to contributing too much to a 529 plan however. If you do not use the money for qualified educational expenses and withdraw the assets from the account, the income is taxable and has an extra 10% penalty. You are able to change beneficiaries to others that may have those educational costs which would avoid this additional tax. It is important to gauge the future needs of those planning to use the 529 plan assets so you do not under or over fund the accounts.
If you think 529 plans could be a good addition to your overall planning goals, please reach out and we would love to discuss the pros and cons in more detail with you as you make your decisions.
