More Than College Savings

By now, most people are familiar with 529 plans as a tax efficient way to save for college expenses. One thing that keeps people from contributing, however, is the feeling that you’re getting a raw deal if you don’t use the money for college.   

Well. we have already covered this a little bit in a Weekend Word last year (Flexible College Savings) and now thanks to the Tax Cuts and Jobs Act of 2017, the deal for these plans just got a little better. As of this year 529’s can allow $10,000 per student per year to be spent tax free on private K-12 education.

There are 2 catches:

  1. Not all states follow the federal template for these plans which means they don’t have to allow K-12 distributions. Many states have said they will honor the change. Others are holding out to find out how this change will affect their budgets.
  2. That $10,000 per year can only be spent on the tuition, unlike additional college expenses like books.

As consumers, we’re happy to hear about this change, but it does give people one more thing to check on before selecting the appropriate plan. Each state’s 529 has different plan rules and states treat tax deductions differently depending on the plan you contribute to. So if you do decide a 529 is right for you to dedicate some money for schooling expenses, make sure you do your homework on the best plan to park that money in… or you could have someone like us help you out (shameless plug).  Happy saving!

*The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that a college-funding goal will be met. In order to be federally tax-free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10-percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses."