With springtime comes graduation season, a time when many parents and grandparents examine their educational savings strategies and take action—discussing them as a family and, in many cases, redoubling their efforts to save funds for future college-bound graduates.
Although 529 college savings plans are growing in popularity, roughly 66% of investors 1 are unaware of them and their benefits. A recent study suggests that, on average, a child is seven years old when a 529 account is opened for their benefit. 1 And, as you’ve no doubt heard before, the impact of compounding interest is significant.
With my oldest daughter set to complete her first year of college in just a few short weeks, there’s no better time to share five little-known facts about 529 plans.
529 Plans Can Be Used for More Than College
Funds from a 529 plan can be used to pay for tuition expenses at an eligible educational institution, which is defined as one that participates in U.S. Department of Education student financial aid programs. This includes public or private four-year colleges and universities; trade and technical schools; two-year junior colleges; graduate schools anywhere in the U.S. and abroad; and K-12 public and private schools. In addition to tuition, funds can cover qualified higher education expenses, including fees, room and board costs, and required equipment and supplies, such as computer equipment, software, or internet access expenses.
529 Accounts Are Transferrable
While the beneficiaries of a 529 account are oftentimes children, the person who owns the account controls it. If the first beneficiary doesn’t use the funds in the account, the owner can change the beneficiary to another eligible “member of the family,” as defined under the U.S. Internal Revenue Code, with no penalty. This rule also allows a 529 account to be left in the first beneficiary’s name or grandchildren’s names, resulting in an educational legacy account that can be passed down between generations.
Up to $500,000 Can Be Invested in a 529 Plan Account per Beneficiary
With a generous contribution limit, 529 plans are an excellent resource to support a variety of educational paths. It’s worth noting that anyone can contribute up to $15,000 per year ($30,000 per year if married) per beneficiary to a 529 account without triggering a federal gift tax. There are also super funding options, which allow for contributions of up to $75,000 in one calendar year, $150,000 if married and electing to split gifts, per beneficiary, which can be treated as if the contribution was made over a five-year period for gift tax purposes.
Some States Consider 529 Contributions Tax Deductible; Minnesota Is One of Them
While it’s important to connect with your tax advisor for information about the rules of the state where you file your taxes, in Minnesota, taxpayers may be eligible for a tax deduction of up to $3,000 for eligible contributions to a 529 plan.
Not All 529 Plans Are the Same
While opening a 529 account is fairly straightforward and can be completed online, not all 529 plans carry the same fees, offer the same investments, and hold the same investment philosophies and age-based options. Favorable state taxes should also be taken into consideration.
If graduation season has you thinking about 529 accounts, please contact us or visit carlsoncap.com/services/education/. As the saying goes, it’s never too early to begin saving for college—and this is especially true in the case of 529 accounts.
Morningstar Awards Utah’s my529 A Gold Rating
In an assessment of 61 plans, Morningstar has awarded three plans the Analyst Rating™ of Gold, including Utah’s my529—which has earned the top rating for 10 years straight, longer than any other plan in the 529 industry. Analysts cited the following strengths in Utah’s my529: level of oversight, low fees, strong stewardship, and exceptional investment options, attributes that resonate with CCM’s Investment Team, too, as we partner with my529 to create customized investment experiences for our clients.
For more information about Utah’s my529 plan or education savings strategies, contact your CCM advisor.
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.