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On National 529 Day, Familiarize Yourself with 529 College Savings Plan Features

Thursday, May 28, 2020

National 529 Day (May 29) is an ideal time to make sure you know the basics of 529 college savings plans and just how useful they can be. 

Here are five facets you’ll want to know about: 

Versatility:  529 college savings plans can be used for many forms of post-secondary education across the U.S.  Whether your child decides to attend a two-year or a four-year college, a trade or technical school, or decides to pursue a registered apprenticeship, graduate or professional degree, 529 plan investments can help with the cost. The funds you save can be used in connection with many forms of education in-state or out-of-state and even at some international institutes of higher learning as well.  They can also be used for K-12 tuition and to repay student loan debt, subject to certain limitations.

Tax Benefits:  529 plan investments grow tax-deferred (meaning, unlike other forms of saving and investing, you won’t pay tax on the earnings as your account grows in value) and the growth will never be taxed as long as withdrawals are used for a wide range of qualified higher education expenses such as tuition, fees, room and board, books and supplies, computers and expenses related to special needs beneficiaries. And on top of the favorable federal tax treatment, over thirty states offer a state tax deduction or credit for 529 account contributions. Less tax means more savings!

Ease of Contributions: Many 529 plans have low initial deposit minimums (as low as $25 or less in some cases), making it very easy to get started. Funding the account is easy too. For those wishing to contribute on an automatic basis, most plans allow recurring contributions to be made from one’s paycheck, savings or checking accounts. As an added benefit, it’s easy for friends and family (and even employers) to contribute too.  Everyone wins when contributions are made easy!

Flexibility:  If the beneficiary for whom the account was originally established chooses not to go to college or doesn’t need the full amount that’s been saved, you can change your account beneficiary to another family member with no penalty or cost. This could be a sibling, spouse, cousin, aunt, uncle, stepchild, niece, nephew, and so on. You can even use the money for your own education or save it for your child’s children!

Control of Funds:  Unlike other types of savings vehicles often used for higher education such as UGMA or UTMA accounts where a parent serves as custodian until the beneficiary turns 18 or 21 (depending on state rules) at which time the beneficiary gains full access to the funds, the account owner on a 529 account stays in complete control regardless of the beneficiary’s age. This feature gives parents a sense of comfort in knowing they are in full control of the use and dissemination of the funds.  The account owner can even withdraw funds for a non-qualified purpose. In such case, only the earnings portion of the withdrawal is subject to taxation and a possible 10% federal penalty.

Check with your home state 529 plan, talk to your financial advisor if you have one, or visit the College Savings Plans Network to learn even more. 

About the author:
Patricia Roberts is the Chief Operating Officer of Gift of College, Inc. She has been part of the 529 college savings arena for more than 20 years, serving as an attorney, product manager, and is the past chair of the CSPN Corporate Affiliate Committee.


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