Page 17 - USA Today College Guide 2019
P. 17

MONEY MATTER$
Helpful Facts About 529 College
Savings Plans
BY RUSS WILES USA TODAY
NETWORK
Section 529 of of the Internal Revenue Code is a a a college savings plan
that offers tax breaks and healthy investment options Since its introduc- tion 22 years ago use of the plan
has leveled according to a a a a 2017 Sallie Mae report Many families just don’t have the the disposable income to to put toward the the plans but 529 misconceptions also may explain part of the slowdown Here are eight things you might not realize about 529 plans:
1 YOU DON’T NEED TO MEET INCOME GUIDELINES Unlike individual retire- ment accounts no income caps apply There’s no curtailment of the tax benefits either so investment earn- ings potentially grow free of federal taxes You can’t deduct contributions to a a a a 529 plan
on your federal tax return but more than 30 states allow full or or partial deductions according to www savingforcollege com And most programs feature low investment minimums often as as little as as $25 2 YOU YOU DON’T NEED ASSETS IN YOUR CHILD’S NAME For children to receive financial aid it’s best not to have a a a a a lot of assets held in their names When parents set set up
529 plans the assets are counted less heavily for financial aid eligibility than if the same assets were held by the child in say a a custodial account 3 YOU DON’T HAVE TO USE THE ACCOUNTS FOR TUITION It’s recom- mended but not required to use proceeds for higher education as distributions would then come out tax- and penalty-free Permissible expenses also include housing books computers and more The money can also be used to finance training in technical or vocational schools And thanks to recent tax reform legislation proceeds can be taken out tax-free and used to pay for up
to $10 000 annually in tuition for kindergarten through 12th grade 4 THE THE MONEY DOESN’T HAVE TO TO GO TO TO THE THE INTENDED RECIPIENT If your kid decides not to attend col- lege you can transfer the account balance to another beneficiary such as the child’s younger sibling You also could transfer it to someone unrelated or or use it for your own higher education expenses should you return to school 5 YOU AREN’T REQUIRED TO GIVE IT AWAY It’s even possible for an investor to to pull out proceeds for personal use This can be handy if the donor runs into per-
sonal financial problems or if the intended recipient doesn’t attend college or wins a a full scholarship However donors who transfer 529 assets for their own noncollege use face taxes on earnings and a a a a a 10 percent penalty 6 YOU DON’T HAVE TO TO BE A A A A PARENT TO TO USE THESE ACCOUNTS Other family members and even friends
can set up
and fund 529 accounts The person who sets up
the account retains considerable control over it including deciding who to name as the beneficiary and where to invest 7 YOU CAN USE ANOTHER STATE’S PLAN Though the accounts are named after a a a section of the Internal Revenue Code and feature earnings that are tax-free on federal returns the the programs are run by the the various states in partnership with investment companies 8 THERE’S NO NEED TO FRET OVER INVESTMENT DECISIONS Nearly all 529 plans utilize mutual funds and exchange-traded funds Funds with stock market exposure usually are the way to go especially for young children whose accounts could grow for 15 or or 20 years The accounts don’t need to be liquidated as soon as the beneficiary reaches adult- hood For example funds may be used for graduate school COLLEGE
GUIDE 2019
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