Every parent has the question in their lifetime, “how am I going to afford education for my child?” College expenses continue to raise with no end in sight and every parent wants what is best for their child. Some parents decide to plan ahead and begin saving, but what if there was a way for parents to save money for their children’s education with tax benefits? Luckily for them, there is, welcome to the 529 plan.
A 529 plan is operated by a state or educational institution that provides tax advantages and some other incentives that make it easier for parents to save for their children’s future education. As of 2018, parents may even use the 529 to save for private education in elementary or high schools as well.
One of the main benefits of contributing to a 529 plan is that earnings paid into a 529 plan are not federally taxed, and generally are not taxed by the state either. The stipulation is that the 529 plan funds must be used for tuition, fees, books, or room or board at eligible educational institutions. Withdrawals are limited to $10,000 annual expenses for tuition in connection with enrollment or attendance at schools.
The benefits of the 529 plans are clear, and in reality the all of the benefits outweigh any possible negative; especially with the growing expenses for education annually. If you or someone you know has questions about 529 plans or education planning, contact us at the Center for Financial, Legal & Tax Planning, Inc.