I have two of the greatest nieces on the planet. The oldest is in 8th grade, and the youngest is in 5th grade. I know they’re still pretty young, but recently I started talking to my brother about their future education plans. When I asked him if they had a 529 plan that I could contribute money towards their education, he had no clue what I was talking about.
So even though I don’t have any kids of my own, many allied health professionals are parents and have families of their own. Many employers provide benefits such as health insurance and individual retirement accounts, but 529 plans are often not a part of that package. From the moment our child is conceived, many people are planning how they will pay for their education!
What is a 529 Plan?
What exactly is this magical, mystical plan that can be used for educational purposes? A 529 plan is a state-sponsored education savings plan that can be used toward education expenses for the account beneficiary.1
So whether you’re a parent, a grandparent, or an aunt/uncle, you can create an account and make the beneficiary for whoever you choose. As the account owner, you control all the investment decisions.
For example, I am the one who created 529 accounts for both of my nieces. I make the decision on how the funds are allocated in the account. If other family members want to contribute, I provide them a gift code that they use to gift money that goes directly into their accounts. But as the account owner, I have the control over the account.
What Counts as Education Expenses?
Qualified expenses are not just for tuition. Beneficiaries can also use money from their 529 plan to go towards books and supplies, computers and internet access, and room and board.2
Money for tuition can also go towards online courses and trade schools as well. But make sure that you are attending an eligible institution for this to count. 529 plan money can cover the costs of mandatory books and supplies. Also, your 529 plan can cover on campus boarding and off campus rent.
Benefits/Limitations of a 529 Plan
529 plans are great because since the money going in it post-tax, the money will continue to grow tax-deferred. Because 529 plans are investments, they won’t lose their value over time, unlike keeping this money in a high yield savings account. Plus, distributions will be tax-free as long as they are used to pay for qualified education expenses.3
There are limits to how much you can contribute. Contribution limits depend on the state’s plan but are typically more than $235,000. The federal gift tax exclusion allows a contributor to give up to $15,000 per year per beneficiary, or $30,000 if you’re giving as a married couple.1
What if my child does not attend college?
This money is not necessarily only for college. Maybe the beneficiary decides to attend trade school, or do an apprenticeship. They can use this money towards this as well. Or maybe they want to wait a few years before going to college. The money in the 529 plan can wait until they are ready.
If the beneficiary decides not to attend college, you can easily change the beneficiary to their sibling, or another family member who is planning on attending college. They don’t even need to be a child! Anyone, at any age, can be a beneficiary.1
This blog post is just a brief overview of 529 plans. If you are interested in getting started, I would recommend checking out Saving for College. This website covers 529 plan ratings and rankings, how to save for college, student loans, and more!
If you’re looking for other ways to build your emergency fund and grow your wealth, check out these blog posts:
Note: I am not a certified financial advisor/planner or a certified financial analyst or a CPA or an accountant or a lawyer. Remember, I am an allied health professional, just like you!This website/blog is for entertainment and educational purposes only. Please consult with your financial advisor(s) regarding your personal finance, investment, and tax matters.
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