Kathryn is Content Director at Savingforcollege.com. She has been quoted in financial publications including the Wall Street Journal, the NY Times, Fortune, Money and GOBankingRates, and has been an expert guest on personal finance podcasts. Prior to Savingforcollege.com, Kathryn worked in product marketing at Henderson Global Investors (now Janus Henderson Investors), a global asset manager. She earned her MBA with Finance Concentration from DePaul University's Kellstadt Graduate School of Business, and has prior FINRA Series 7 and 63 licenses. Kathryn has 529 college savings plans for each of her three children, and enjoys creating content to help other families prepare for future higher education costs.
Reporting 529 Plan Withdrawals on Your Federal Tax Return
When 529 plans are used to pay for qualified expenses there is usually nothing to report anything on your income tax return. Form 1099-Q and Form 1098-T will list the amount of the 529 plan distribution and how much was used to pay for college tuition and fees, but it is up to you to calculate the taxable portion.
States where you can claim a prior-year 529 plan tax deduction
State income tax deadlines are approaching, but families saving for college may still have time to reduce their 2018 taxable income. Most states have a December 31 contribution deadline to qualify for a 529 plan tax deduction, but taxpayers in the states listed below have until April 2020.
529 plans and your tax return
Tax season is well under way, and many of us have been spending the past few weeks getting our financial records in order. When you dig out last year's filing, you're relieved to see that almost everything looks the same this year. Except what about your 529 plan contributions? Do your college savings need to be reported to the IRS?
How much can you contribute to a 529 plan in 2020?
There are no annual contribution limits for 529 plans. However, each 529 plan has an aggregate contribution limit, ranging from $235,000 to $529,000. Families making a large 529 plan contribution should consider the annual gift tax exclusion amount and find out if they qualify for state income tax benefits.
10 Groundhog Day Lessons for College Savers
Punxsutawney Phil often misses the mark. The groundhog has made over 120 predictions, yet he’s only been correct 39% of the time. Parents and grandparents also make inaccurate predictions when saving for a child or grandchild’s college education, but unlike Punxsutawney Phil’s forecast, college savings mistakes can be costly.
Florida’s Prepaid Tuition Plan Drops Prices to Lowest in 5 Years
The Florida Prepaid College Board is lowering prices for the state’s prepaid tuition plan by $1.3 billion. The Board is offering refunds and lower monthly payments to current customers, and lower prices for families who sign up during the next enrollment period. These changes will benefit Florida families who are saving for college.
Can You Donate Your 529 Plan to Charity?
You cannot donate leftover 529 plan money to charity, even when it is targeted for scholarship funding. 529 plan distributions made payable to a charitable organization may be considered non-qualified. A 529 plan beneficiary can only be changed to a qualifying member of the current beneficiary’s family.
Can I Do a Partial 529 Plan Rollover?
Families may rollover all or a portion of their college savings from one 529 plan to another 529 plan. One tax-free rollover is permitted per beneficiary in a 12-month period, and funds must be transferred within 60 days. Learn how to complete a partial 529 plan rollover and if there are any tax implications.
State Tax Breaks for 529 Plan Student Loan Repayments
Under the SECURE Act of 2019, families may use a 529 plan to repay student loans and pay for registered apprenticeship programs. However not all states conform to the current federal definition of qualified higher education expenses. In some states, 529 plan distributions used to repay student loans may be considered non-qualified.
New Law Allows 529 Plans to Repay Student Loans
President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which aims to improve savings habits in the United States. The legislation expands the benefits of 529 college savings plans, including adding student loan repayments and cost of apprenticeship programs as qualified expenses. The new law applies to 529 plan distributions made after December 31, 2018.
Can I Withdraw Contributions from a 529 Plan Without Penalty?
Each 529 plan distribution is made up of an earnings portion and a basis portion. The basis portion, or return of principal, consists of the contributions made to the account. Since 529 plan contributions are made with after-tax dollars, the basis portion of a 529 plan distribution will never be taxed or subject to penalty. However, you may not take a basis-only 529 plan withdrawal.
Pros and Cons of Separate 529 Plans for Two or More Children
In most cases it makes sense to have a separate 529 plan for each child, but some parents may prefer to use a single plan. Here are some advantages and disadvantages to consider when determining the best college savings strategy for your children.
Maximum 529 Plan Contribution Limits by State
Each state has a maximum aggregate limit per beneficiary. Aggregate 529 plans limits apply to all 529 plans administered by a specific state and range from $235,000 to $529,000. The limit is intended to cover the cost of attending an expensive college and graduate school in the state.
529 Plan Contribution Deadlines
529 plans do not have contribution deadlines. You may contribute to a 529 plan any time throughout the year, and you do not have to stop contributing once the child reaches a certain age. But, some families make annual contributions by a specific date to maximize state tax benefits and the annual gift tax exclusion.
The Best 529 Plan for Illinois Residents
Illinois residents can invest in almost any state’s 529 plan, but they are eligible for a state income tax deduction if they contribute to an in-state plan. Illinois administers two 529 plans, the Bright Start Direct-Sold College Savings Program and the Bright Directions Advisor-Guided College Savings Program, and one prepaid tuition plan, the College Illinois Prepaid Tuition Program.
Massachusetts Colleges with the Best Return on Investment
Before selecting a college, it’s important to evaluate the costs and benefits of each option. Massachusetts is home to some of the most well-known colleges and universities in the world, but many cost over $20,000 to attend. Here are the 10 colleges with the best ROI, according to PayScale.com.
How Grandparents Can Save for College in Massachusetts
Grandparents who help save for college can reduce a grandchild’s future student loan debt burden while leaving an educational legacy. In Massachusetts, grandparents who contribute to a 529 plan that they own are eligible for a state income tax deduction. There are also financial aid and tax considerations that grandparents should be aware of when saving for college.
A $500 Holiday Gift Can Pay for a Year of College Tuition
According to 2016 data from T. Rowe Price, on average, parents spent $422 on holiday gift per child, with 34% spending $500 or more. But, what if instead of a buying material gifts, parents and grandparents made a contribution to the child’s 529 college savings plan?
Financial Checklist for New Parents in Massachusetts
A Massachusetts parent’s financial responsibilities go beyond just paying for food and diapers. To make the transition into parenthood easier, you’ll want to budget for upcoming child-related expenses and make sure you have the right financial documents in place. Here’s a quick checklist to get you started.
How Much to Save for a Massachusetts College
Although Massachusetts is one of the smallest states in the U.S., it is home to over 80 colleges and universities. Many of the state’s most well-known colleges currently cost over $20,000 a year. The amount parents should save to send their child to a Massachusetts college depends on their child’s age and the specific college they are saving for.
Which 529 Plan Should Texas Residents Use?
Texas has two 529 college savings plans, the Texas College Savings Plan and the Lonestar 529 Plan. But, Texas residents are not limited to using an in-state 529 plan. Families should also consider out-of-state 529 plans that have lower fees and better investment performance.
Which 529 Plan Should New York Residents Use?
New Yorkers can choose to invest in almost any 529 plan, but they are eligible for a state income tax deduction if they use an in-state 529 plan. The state of New York administers two 529 college savings plans, New York’s 529 College Savings Program – Direct Plan, and New York’s Advisor-Guided College Savings Plan.
Socially responsible investing with 529 plans
Socially responsible investing (SRI) is a strategy that considers social or environmental factors in addition to financial return. However, families saving for education may have a difficult time finding SRI investment options within 529 plans.You may even find that your plan has exposure to gun manufacturers.
Tuition Gift Tax Exclusion
The tuition gift tax exclusion allows grandparents and other individuals to reduce their taxable estate while helping a child a child pay for college. Direct tuition payments are exempt from gift taxes and the Generation-Skipping Transfer Tax. Grandparents do not have to file a gift tax form when money is paid directly to a college, even if the amount exceeds the $15,000 annual exclusion amount.
Scariest College Savings Horror Stories and How to Avoid Them
With proper planning, a 529 plan can help you save for your child's future and avoid student loans. But, college savings mistakes can haunt you. We asked a financial attorney to share her most terrifying college savings stories from her clients.
Responsible Investing With 529 Plans
Today’s investors want more from their investments than just solid returns. Socially responsible investing (SRI) and environmental, social and governance (ESG) investing incorporate ethics into the investment process. Ten 529 plans currently offer sustainable portfolios.
Which 529 Plan Should Massachusetts Residents Choose?
Massachusetts has one 529 college savings plan, MEFA’s U. Fund, which is managed by Fidelity Investments and available to residents of any state. Although Massachusetts residents may invest in almost any state’s 529 plan, they could be eligible for a state income tax deduction and a matching grant if they use MEFA’s U. Fund.
Which 529 Plan Should California Residents Choose?
There is no specific benefit offered to California residents who use ScholarShare 529 instead of another state’s 529 plan. But, ScholarShare 529 is a highly rated 529 plan with low fees, a variety of investment options, strong historical performance and a matching grant program for residents.
Can a Non-U.S. Citizen Use a 529 Plan to Save for College?
Parents and grandparents who are non-U.S. citizens may be able to open a 529 college savings plan if they are U.S. taxpayers. Most 529 plans require the account owner to be a U.S. citizen or a resident alien who has a Social Security Number or Tax Identification Number.
Answers to Common Questions About Saving for College
Saving for college is a top priority for many families. But, some parents hesitate to open a 529 plan because they are confused about how they work. Here are answers to 10 common questions about saving for college that can help you plan for your child’s future.
Is High School Too Late to Start Saving for College in a 529 Plan?
Many families get a late start on saving for college. Parents who open a 529 plan when their child is a high school freshman can still take advantage of the federal (and sometimes state) tax benefits, even if college is only a few years away. Any amount saved for college will reduce the child’s future student loan debt.
Can You Use a 529 Plan to Pay for Coding Bootcamp?
529 plan funds can be used to pay for a coding bootcamp taken at an eligible college or university. Distributions used to pay for a course offered through a private compare are considered non-qualified. Other ways to pay for coding bootcamp include scholarships, student loans, income share agreements and deferred tuition plans.
Timing of 529 Plan Distributions Must Match Qualified Expenses
After years of diligently saving, the last thing a parent wants is to owe taxes and penalties when they withdraw from their 529 plan account. To make the most of your college savings, it’s important to pay attention to the timing of 529 plan withdrawals.
Calculating How Much Clients Can Afford for College
Learn how to help your clients determine how much they can afford to pay for college. This involves using all available resources, including 529 plans and financial aid, and keeping student loans to a minimum. These four questions will help you start the discussion.
How to Grow Your Practice With 529 Plans
As college costs continue to rise, parents and grandparents are seeking help from financial professionals to help with college funding. College is a major expense, and the amount a family invests in a 529 plan can have a big impact on their overall financial plan. Helping families with college funding can help you grow your client base and increase assets under management.
Can You Use a 529 Plan to Buy or Rent a Car?
You cannot use a 529 plan to buy or rent a car. Transportation costs, including the costs of purchasing and maintaining a car, are considered non-qualified expenses. Students can save on transportation costs by renting a car, using a rideshare service or riding a bike or electric scooter.
Can You Use a 529 Plan to Pay for Online Classes?
Students may use a 529 plan to pay for online courses offered through at an eligible institution. Taking online courses is a popular way to save money on college tuition. According to data from Babson Survey Research Group, nearly one-third of college students took at least one distance education course in 2016.
Will I Get a 529 Plan State Tax Break If I Move to Another State?
Whether it’s for a new job or another personal reason, relocating your family to a new state can be overwhelming. As you establish residency in your new state, it’s important to review your state’s rules regarding state income tax benefits for 529 plan contributions.
Major Enhancements to Florida’s 529 Savings Plan
The Florida Prepaid College Board announced new enhancements to the state’s 529 college savings plan. The enhancements are part of the Board’s “Win Florida” vision, which aims to offer reliable 529 plan management, diversified investment options and low fees to Florida families who are saving for college.
Will I Get a State Tax Break If I Use an Out-of-State 529 Plan?
For most families, a 529 plan is the most effective way to save for college. Contributions are made with post-tax dollars, earnings grow tax-deferred and distributions are completely tax-free when used to pay for qualified higher education expenses. You may also be eligible for state income tax benefits, depending on where you live and which 529 plan you contribute to.
What is a Custodial 529 Plan Account?
Families saving for college may set up a custodial 529 plan account. A custodial 529 plan account is a 529 plan owned by a minor child, who is also the named beneficiary on the account. Custodial 529 plan accounts offer many of the same benefits as a traditional 529 plan account, but there are also some key differences.
529 Plans Receive Favorable Treatment on the FAFSA
The impact of a college savings account has on financial aid eligibility depends on the type of account, and who owns the account. 529 plan accounts owned by a parent or dependent student generally have a more favorable impact on financial aid eligibility than other types of investment accounts.
The Pro 529 Evaluator Helps You Stay Compliant with Regulations
Financial professionals who sell 529 plans are required to act in their clients’ best interests and must adhere to the rules of the MSRB. The Pro 529 Evaluator is a tool designed to help financial professionals confidently recommend 529 plans while staying compliant with rules and regulations.
How to Make Sure Your Grandchild’s 529 Plan is Used for College
A 529 plan account owner, not the beneficiary, controls the assets in the 529 plan account and may not use the funds for their intended purpose. Grandparents who are concerned about contributing to a parent-owned 529 plan may consider opening a 529 plan in their own name or opening a custodial 529 plan for their grandchild.
Grow Your Practice with Grandparent 529 Plans
529 plans are an effective tool for clients who want to help pay for a grandchild's college education. But, a grandparent's financial gift may hurt their grandchild’s eligibility for need-based financial aid. Here are some important points to cover when discussing 529 plans and college funding with your clients.
Using Your State Income Tax Refund to Save for More College
Finding room in your budget for college savings can be challenging. Some families may prefer to make lump sum 529 plan contributions throughout the year instead of, or in addition to automated monthly contributions. A lump sum lump may come unexpectedly, such as from an inheritance or lottery winnings, or a recurring annual windfall such as an income tax refund.
How to Rollover a Prepaid Tuition Plan to a 529 Savings Plan
Prepaid tuition plans allow families to pre-pay all or a portion of future college costs at today’s prices and can act as a hedge against college inflation. But, prepaid tuition plans are more restrictive than 529 college savings plans, and may not be the best option for some students. Here are some things to consider before you rollover a prepaid tuition plan to a 529 college savings plan.
College is More Affordable when Families Plan Ahead
More families had a plan to pay for college than last year, according to Sallie Mae’s 12th annual “How America Pays for College” report, 44% compared to 40%. The families who planned ahead had more available options, spent more money on college and were more satisfied with their college decision and how they paid for it.
How to Help a Teen Save for College with 529 Plan Gifting
It’s important to benchmark your college savings progress as your child enters their teenage years. If you find your savings are coming up short of your goal, you may want to consider asking friends and family to make a 529 plan gift contribution. Every dollar contributed to your teen’s 529 plan is one dollar less they will have to borrow in student loans.
Earn Cash Back for College this Summer with Upromise
Summer spending season is here. This year, instead of busting your budget, why not earn cash back for college as you enjoy summer fun with your family? Upromise® is a program that helps families save for college by doing the things they do every day. Upromise members can earn cash back each time they shop online through Upromise or dine at participating restaurants.
Does a Sibling’s 529 Plan Assets Hurt Financial Aid Eligibility?
Assets held in a student’s 529 plan are considered when determining the student’s financial aid eligibility. A sibling’s 529 plan assets may also be considered, depending on whether the sibling’s 529 plan is a parent-owned 529 plan or a custodial 529 plan, and which college the student attends.
Employer-Paid Tuition Assistance
Some employers offer tuition assistance as an employee benefit. Employees who receive employer paid tuition assistance can exclude up to $5,250 of the benefit from federal income taxes each year, as long as certain qualifications are met. Tax-free education assistance is intended for the employee, but not their spouse or dependents.
Can You Use a 529 Plan to Pay for Health Insurance?
You cannot use a 529 plan to pay for health insurance, but many colleges require students to have health insurance. College students have the option to stay on their family’s health insurance, enroll in a campus health plan or purchase their own insurance plan.
Investment Time Horizon
Knowing your investment time horizon will help you select the appropriate mix of investments to help you reach your goals. A parent’s investment time horizon for a 529 plan will depend on their child’s age and whether they are using the funds to pay for college or K-12 tuition.
The Best 529 Plan Investments Based on a Child’s Age
Parents should review their 529 plan investment options periodically to make sure they are still on track to meet their goals. With only 18 years from birth to college, your investment objective may change quickly from growth to preserving capital.
How to Open an Advisor-Sold 529 College Savings Plan
Advisor-sold 529 plans are only available through licensed financial advisors who work for a broker-dealer or registered investment advisor. A financial advisor may help a family select and open a 529 plan, create a college savings investment strategy and offer guidance when it is time to pay for college.
New SEC rules require financial advisors to act in investors' best interests
The SEC recently adopted new rules to help protect investors from bad advice, high fees and conflicts of interest when buying investment products from financial advisors. Under the new rules, financial advisors who earn commissions (brokers) will be held to a higher standard of conduct when recommending investment products such as IRAs and 529 plans.
Dual Enrollment vs. AP Classes
Dual enrollment and Advanced Placement (AP) classes both offer an opportunity for high school students to earn college credit while in high school. However, there are some key differences between AP and dual enrollment classes, such as how college credit is earned and the availability and costs of classes.
Which College Expenses Qualify for Education Tax Benefits?
The federal government offers a number of tax incentives to help offset college costs. Tuition and fees always count as a qualified expense for these tax incentives, but other expenses, such as room and board and transportation, may or may not be covered depending on the education tax benefit.
Which is best: 529 college savings plan or Roth IRA?
It’s safe to assume that many families have added college planning to their list of financial resolutions for 2015. The average cost of sending a child to a four-year public university is over $75,000 today, which means if you have a young child you can expect to pay over $150,000 when their time comes. If you have more than one child or choose a private school, your total college costs could easily end up totaling more than the price of your home.
Should I Pay Off My Mortgage Early or Save for College?
Instead of saving for college in a 529 plan, some families pay off their mortgage early to free up future cash flow. Families should consider their mortgage interest rate, the liquidity of their assets and whether or not they plan to stay in their home before deciding to pay off their mortgage early.
Can You Rollover Funds from a 529 Plan to a Coverdell ESA?
You cannot rollover funds from a 529 Plan to a Coverdell Education Savings Account (ESA). However, Coverdell ESAs allow tax-free outbound rollovers to other Coverdell ESAs and to 529 plans with the same beneficiary or a beneficiary who is a family member of the current beneficiary.
Avoid these 8 Mistakes When Opening a New 529 Plan Account
Parents should carefully consider all of their options when setting up a new 529 plan account to save for college. Making the wrong decision can be costly and detrimental to a family’s college savings. Here are six common mistakes to avoid when opening a new 529 plan.
18 States Offer FDIC-Insured 529 Plan Options
18 states offer 529 plan options that are insured by the Federal Deposit Insurance Corporation (FDIC), including high yield savings accounts and bank certificates of deposit (CDs). FDIC-insured investments are suitable for families who want to preserve capital in their 529 plan without taking on excess risk.
When to consider a Coverdell ESA to 529 plan rollover
Up until recently, the Coverdell ESA was the only tax-advantaged account designed to save for elementary and high school expenses. But the signing of the Tax Cuts and Jobs Act in 2017 expanded the definition of 529 plan qualified higher education expenses to include $10,000 per year in K-12 tuition, giving families another option.
The Generation-Skipping Transfer Tax and 529 Plan Contributions
The Generation-Skipping Transfer tax (GST) is a federal tax on 529 plan contributions and other property transferred to a beneficiary who is at least 37 ½ years younger than the donor. Since the GST was introduced in 1976, wealthy grandparents can no longer avoid taxation by “skipping” their own children and leaving inheritance directly to their grandchildren.
College Savings Makeovers
College is a major expense, and families without a plan for their children could risk jeopardizing their retirement and future financial independence. New parents, parents of high school students and grandparents all turn to financial advisors for help with college planning.
Automatic Investing in a 529 Plan
Automatic investing in a 529 plan is a proven strategy to help families save more for college. Families who have to remember to make a 529 plan contribution each month are likely to forget and miss out on potential tax-free earnings growth. Investors will also benefit from dollar-cost averaging.
Tuition and Fees Deduction
The Tuition and Fees Deduction allows eligible taxpayers to deduct up to $4,000 from taxable income to help cover higher education costs for themselves, a spouse and dependent children. The Tuition and Fees Deduction expired at the end of 2016 but was renewed for the 2017 tax year with the Bipartisan Budget Act of 2018.
An Alternative to 529 Plan Superfunding
Superfunding a 529 plan can help jump-start a child’s college savings while sheltering a large amount of assets from the donor’s taxable estate. However, wealthy grandparents may be able to make a larger tax-free gift by using up part of their lifetime gift and estate tax exemption.
Who is a Member of the Family of a 529 Plan Beneficiary?
A 529 plan account owner may change the beneficiary at any time without tax consequences when the new beneficiary is a family member of the current beneficiary. The IRS provides a broad definition of family member, which includes the beneficiary’s blood relatives and relatives by marriage and adoption.
When You Should Not Change Your 529 Plan Beneficiary
529 plans offer the flexibility to change the beneficiary to a qualifying member of the current beneficiary’s family without tax consequences. However, in some cases changing the beneficiary is not necessary to maximize tax consequences. Here are situations when you should consider keeping your current 529 plan beneficiary.
Why You Should Change Your 529 Plan Beneficiary
Families may change the beneficiary on a 529 plan to a qualifying member of the family of the current beneficiary at any time without tax consequences. This flexibility may help families avoid paying taxes and penalties on unused 529 plan funds and can be used as a strategy to avoid limitations around 529 plan rollovers and investment options. Here are several reasons why a family might consider changing their 529 plan beneficiary.
How to Change the Beneficiary on Your 529 Plan
529 plans are designed to help save for the future education costs of a single beneficiary. However, the 529 plan account owner may change the beneficiary to a qualifying family member at any time without tax consequences by completing a form on the 529 plan’s website.
Bill Moves Forward to Allow 529 Plans to Repay Student Loans
The House Ways and Means Committee unanimously passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which aims to improve savings habits in the United States. The legislation proposes expanding the benefits of 529 plans, including adding student loan repayments as a qualified expense.
Six Signs It Might Be Time to Switch 529 Plans
The 529 plan you choose can have a big impact on your ending balance when it's time to pay for college. However, a family's needs may change over time and sometimes it makes sense to switch 529 plans. Here are some of the most common reasons why a family might consider switching 529 plans.
Lifetime Learning Tax Credit
The Lifetime Learning Tax Credit (LLTC) allows eligible taxpayers to claim an annual tax credit of up to $2,000 to help cover college and continuing education costs for themselves, a spouse or dependent children. The LLTC can be claimed once per taxpayer per year and for an unlimited number of years.
How to Withdraw Money from Your 529 Plan
Money saved in a 529 plan can be withdrawn tax-free to pay for qualified education expenses. It’s up to the 529 plan account owner to calculate the amount of the tax-free distribution and how they want to receive the funds. Withdrawal requests can usually be made on the 529 plan’s website, by telephone or by mail.
Can You Use a 529 Plan to Pay for Trade School?
529 plans can be used to pay for postsecondary education at any eligible institution, including trade schools. Trade school programs typically take less than two years to complete, and cost significantly less than a bachelor's degree from a 4-year college.
How to Fill a College Savings Gap
Even after years of saving in a 529 plan, many parents come up short when it’s time to pay for college. It may be tempting to dip into retirement savings or take out an excessive amount of student loans to fill the gap but doing so may put your (or your child’s) future financial security at risk.
American Opportunity Tax Credit (AOTC)
The American Opportunity Tax Credit (AOTC) allows eligible parents to claim an annual tax credit of up to $2,500 per student to help cover college costs. The AOTC is also available to dependent students, as long as certain income and other criteria are met. Tax-free distributions from a 529 plan are limited to qualified expenses that were not counted toward the AOTC.
The Best Tools to Help You Save for College
College is a major expense for most families. 529 plans are designed to help save for college, but many parents are confused about how they work. Fortunately, there are several tools available that help with selecting and opening a 529 plan, scheduling contributions and inviting friends and family to contribute.
College Savings Tips for Working Parents
The cost of raising a child from birth to age 17 has risen to $233,610, not including college savings. Even households with two working parents may struggle to find room in their budget for 529 plan contributions. But, there are ways working parents can take advantage of their additional income to cover a child’s future education costs.
How to Afford College Textbooks
For many college students, textbooks are a big part of out-of-pocket costs. According to a recent Cengage survey, buying textbooks and course materials are a top source of financial stress for students, second only to tuition expenses. Before heading to the campus bookstore, students should consider other ways to access textbooks, such as renting, borrowing or buying used editions.
States that Do Not Conform with Federal 529 Plan Tax Laws
529 plans were added to the Internal Revenue Code in 1996 to authorize federal tax-free status of qualified tuition plans. Federal tax benefits of 529 plans include tax-deferred investment growth, tax-free distributions for qualified education expenses including up to $10,000 in K-12 tuition and tax-free 529 plan rollovers. However, some states do not fully conform with the federal laws regarding qualified tuition programs.
How to Save More for College
Many parents have trouble saving money for college. After day-to-day expenses and competing financial priorities, it may seem like there is little leftover to fund a 529 plan. But, in some cases what seems like a monetary problem is actually a psychological problem that can be fixed by changing your habits.
What you can't pay for with a 529 plan
529 plans are tax-advantaged accounts designed to save for college, but the tax benefits are only available when the funds are used to pay for qualified expenses. Distributions used to pay for some college expenses are considered non-qualified and may be subject to income tax and a 10 percent penalty on the earnings portion.
How Does Your State’s 529 Plan Income Tax Benefit Work?
Taxpayers in over 30 states may claim a state income tax deduction or tax credit for contributions to a 529 plan. However, each state has its own rules regarding the type of tax benefit, and the amount of 529 plan contributions eligible for a state tax deduction or credit each year. Understanding how 529 plan state income tax benefits work can help parents make an informed decision when selecting a 529 plan for their child.
Don't Count on Using a 529 Plan for State Tax Breaks on K-12 Tuition
The definition of qualified higher education expenses now includes tuition at K-12 schools. However, in some states, 529 plan distributions used to pay for K-12 tuition may be taxable at the state level, and any state income tax benefits claimed may be subject to recapture.
My Child Turned 18. Can I Still Claim a 529 State Tax Benefit?
Families who contribute to a 529 plan may be eligible for a state income tax deduction or credit, depending on where they live. A state income tax benefit may be claimed each year contributions are made, including before, during and after the beneficiary attends college.
Are 529 Plan Contributions Tax Deductible When Used for K-12?
Contributions to a 529 plan are made with after-tax dollars, and therefore are not tax deductible at the federal level. However, some families using a 529 plan to pay for K-12 tuition may qualify for a state income tax deduction or tax credit for 529 plan contributions.
Using a 529 plan to pay for K-12? These states offer tax benefits.
The Tax Cuts and Jobs Act expanded the definition of 529 plan qualified expenses to include up to $10,000 per year in K-12 tuition. Twenty-one states have conformed to the new tax law, and offer a state tax deduction or credit for 529 plan contributions when the funds are used to pay for K-12 tuition.
Student Loan Debt Hinders Retirement Plans for Baby Boomers
A report from Guardian Life Insurance Co. revealed that Baby Boomers are the fastest-growing category of student loan debtors. Over half of 54- to 60-year-olds say college debt is preventing them from meeting financial goals, including retirement. Baby Boomers with student loan debt may consider refinancing their loans or exploring employer loan repayment assistance.
More Americans Give the Gift of College, Setting 529 Plan Records
Many 529 plans reported double-digit increases in gift contributions during the 2018 holiday season. This could be a sign that grandparents and other loved ones are becoming more comfortable with giving the gift of college. Parents may also be taking advantage of online tools and registries offered by 529 plans that make asking for gifts and receiving gifts easier.
Can a 529 Plan Be Used to Pay for Summer Camp?
You cannot use a 529 plan to pay for summer camp costs. Summer camp expenses can add up, but there are ways families can bring costs down. For college students, 529 plans can be used to pay for study abroad and other summer programs offered through an eligible college or university.
FINRA Gives Firms Until April 1 to Self-Report 529 Plan Share Class Violations
FINRA’s new 529 Plan Share Class Initiative allows firms to self-report any issues with 529 plan share class recommendations and supervision by April 1 to avoid fines. FINRA hopes the initiative will help to remedy potential violations and return money to affected investors as quickly and effectively as possible.
Using a 529 Plan to Pay for Continuing Education
Adults returning to college can use a 529 plan to pay for continuing education, undergraduate courses or graduate courses offered at an eligible college or university. Parents may use leftover funds in a child’s 529 plan account, or adults can open their own 529 plan account to pay for qualified higher education expenses. Residents of some states are eligible for a state income tax deduction or credit for 529 plan contributions, no matter how long the funds are held in the 529 plan account.
Remember John Bogle's Advice When Saving for College
John C. Bogle, founder of the Vanguard Group, has died at age 89. Bogle was known as the father of index investing, a low-cost, passive strategy that aims to match returns of a broad market index, such as the S&P 500 Index. Many 529 plans offer Vanguard index funds as underlying investments.
How to Freeze a Child's Credit
A new law requires credit bureaus to offer free credit freezes for adults and children under 16. Freezing a child’s credit helps protects them from identity theft, including financial aid fraud. Children are an easy target for identity thieves, since it can take years to discover that a child’s identity has been compromised or stolen.
States are Beginning to Offer 529 Plan Investment Options for K-12
Louisiana and Kentucky are the first states to offer 529 plan investment options specifically designed to help families save and pay for K-12 tuition. Louisiana launched the START K12 Program, a separate 529 plan for K-12, and Kentucky will offer new investment options based on college or K-12 enrollment dates.
How to Save for College When You're Living Paycheck to Paycheck
Almost 1 in 10 working Americans earning $100,000 or more live paycheck to paycheck, according to a report from CareerBuilder. With little or nothing left over after meeting financial obligations each month, saving for college might seem impossible. But, even a small amount invested wisely in a 529 plan can make a big difference when your child is ready for college. Here are some ways even families on a tight budget can build substantial college savings.
Emotional Investing Mistakes to Avoid When Saving for College
Saving for a child’s college education can be an emotional journey for parents and grandparents. But, making emotional investment decisions with your college savings can have negative consequences that will keep you from reaching your goals.
Don’t Panic: What to Do with College Savings in a Volatile Market
Fearing the end of the longest bull market in history, families may start to panic and make moves detrimental to their college savings. Here are some things to consider before making any changes to your 529 plan investments during a stock market downturn.
New Year’s College Savings Resolutions
New year’s resolutions often include financial goals such as paying down debt and saving money for retirement. Parents who are saving for college should also use this time to review and improve their college savings strategy. Here are nine college savings resolutions to get you on the right track for the year ahead.
NextGen 529 – Client Direct Series: 529 plan review
The NextGen 529 Client Direct Series is a direct-sold 529 plan available nationwide. Investors can select from BlackRock mutual funds and iShares exchange traded funds (ETFs). The plan is administered by the Finance Authority of Maine, which offers matching grants for eligible Maine residents.
Should you switch 529 plans if you move to another state?
Families who are moving to another state may consider switching 529 plans to maximize state income tax benefits. Federal tax law allows one tax-free 529 plan rollover per 12-month period. However, each state has its own rules regarding eligibility for income tax benefits and tax treatment of 529 plan rollovers.
How to open a direct-sold 529 plan
Families saving for college can enroll in a direct-sold 529 plan by completing a form on the 529 plan’s website. Direct-sold 529 plans are convenient and generally offer low fees, but the account owner is responsible for selecting and monitoring the 529 plan’s underlying investments.
State tax incentives for employer 529 plan matching
States encourage residents to save for college by offering state income tax breaks, matching grants and scholarships for families who use 529 plans. Some states also drive 529 plan participation through employers by offering a tax incentive for contributions to employee 529 plans.
529 plans that offer ETFs
After a 529 plan is opened, the next step is to select an investment portfolio that will help maximize college savings. Parents may want to consider a 529 plan portfolio that contains exchange-traded funds (ETFs). ETFs can be a low-cost way of investing in a total stock market or index portfolio.
529 plan gifts may be deductible on state income tax returns
One of the most effective ways to help a child save for college is by funding a 529 plan. Investments in a 529 plan grow tax-free and will not be taxed when the beneficiary uses the money for college. The gift giver may also qualify for a state income tax deduction or credit for 529 plan contributions, regardless of who owns the account.
Should you have a separate 529 plan to save for K-12?
Families can now use a 529 plan to save and pay for up to $10,000 (per year, per beneficiary) in tuition expenses at K-12 schools. If you're thinking of using a 529 plan to save for K-12 tuition, you should consider keeping your K-12 savings separate from your college savings plan.
Is it ever too late to start saving for college?
Ideally, parents should start saving for college as soon as their child is born (or earlier). But, even if your child is a teenager there is still time to take advantage of 529 plan benefits and reduce the amount they will have to borrow in student loans.
With Upromise, you can earn money for college every time you travel
Looking for ways to boost college savings? Families can earn rewards of 7% cash back or more by booking travel plans through the Upromise shopping portal. Earned college dollars can be automatically transferred to a linked 529 plan account.
Is it ever too early to start saving for college?
Many new parents hesitate to enroll in a 529 plan because they want to plan for their own retirement and/or they’re not sure about the future. But, each day you wait to start saving for college you miss out on potential earnings growth in your 529 plan account. To get the most out of your 529 plan, the best time to start saving for college is right now.
How much do you really save by going to community college?
A popular strategy to reduce college costs is to start out at a community college and eventually transfer and graduate from a 4-year college. But, transferring colleges isn’t always a smooth process, and could end up costing you more than you expect.
Average 529 plan balance: How do you compare?
The average 529 plan balance has hit a record high. But, this amount may not be sufficient to cover future college expenses. The amount you should have saved for college depends on your child’s age and where they want to go to college. Find out if your college savings are on track
Want to retire early? Don’t forget to save for college.
The FIRE movement focuses on cutting spending and aggressively saving enough money to gain financial independence and retire early. But, followers of FIRE are not always considering future college costs, putting their children at risk for high student loan balances.
529 plans save families billions of dollars in federal income tax
529 plans experienced record growth over the past decade. The number of 529 plan accounts, total assets in 529 plans and 529 plan account balances have hit all-time highs. A study from Pew Research reports a 25 percent increase in 529 plan federal tax savings from 2017-2017, and a similar boost in state tax savings.
Psst! Want to save $1,200 for college? Join Upromise.
Upromise is a loyalty program that rewards members with cash back for making purchases online, dining at restaurants or using the Upromise Mastercard. The rewards available through Upromise may seem small at first, but when deposited into a 529 plan they have the potential to grow into a significant amount that can help pay for college.
Upromise revamps college savings program
Upromise, a program that allows members to earn money for college through everyday purchases, recently added new features and tools to simplify the college savings process. Upromise earnings can now be swept directly into any 529 plan, checking or savings account.
Parents turn to financial advisors for help with college savings
According to a new study from Fidelity, 64 percent of families said their financial advisor keeps them on track to meet college savings goals. Families who have a financial advisor are also more confident about their plan to save for college.
529 savings plans and private school tuition
The 2017 tax reform package expanded 529 plan benefits to include tax-free withdrawals for private elementary, middle and high school tuition. The new law also allows traditional 529 accounts to be rolled into 529 ABLE accounts without taxes or penalty. This page includes all the information available on this and other new benefits of 529 plans as of January 1, 2018, and will be updated regularly as additional details become available.
The truth about scholarships and 529 plans
Scholarships can help fill the gap when a family isn't able to save for their entire college bill, and they can put a coveted, more expensive school within reach. But just because you feel your child has a good shot at winning a scholarship one day doesn't mean you should hold off on saving with a 529. Here's why:
5 things to consider before doing a 529 plan rollover
There are a number of reasons why someone might want to change 529 plans. Perhaps your plan has been underperforming, or you maybe you moved and your new state offers a tax deduction for contributions. In the rare event that a state closes a plan, such as Tennessee's prepaid tuition program, account owners have the option to rollover their account value into a 529 college savings plan without penalty.
Parents view college as a valuable investment, yet few plan ahead
Despite rising tuition costs, most families still believe college is a worthwhile investment. Yet when it comes to how they’ll pay for college, only 40 percent of families have a plan in place before the student enrolls, according to Sallie Mae’s How America Values College 2018 report.
Top 10 ways to maximize 529 plan benefits
Enrolling in a 529 plan is an important step toward saving for a child’s college education. But, are you taking advantage of all that a 529 plan has to offer? Here are 10 things you can do to maximize the value of your 529 plan and get closer to meeting your college savings goals.
10 easy ways grandparents can help pay for college
Many grandparents want to leave an educational legacy by helping fund a grandchild's college education. Grandparents recognize the value of education, and want to see their children graduate without excessive student loan debt. Learn about 10 different ways a grandparent can help pay for college, and the pros and cons of each.
New starting salary data can help parents set college savings goals
New data from the National Association of Colleges and Employers (NACE) shows average starting salaries of students who graduated with a bachelor’s degree in 2017 are up slightly from the previous year. These figures can help parents determine how much they need to save for their child’s future college education.
Tax reform 2.0 would allow parents to pay off student loans with 529 plans
House Republicans released an outline of “tax reform 2.0”, which builds on the Tax Cuts and Jobs Act signed by President Trump in 2017. It includes provisions that would allow tax-free withdrawals from 529 plans to pay for home schooling costs, apprenticeship fees and student loan payments.
Prepaid tuition plans
Prepaid tuition plans allow you to pre-pay future college costs today. There are currently 18 state-sponsored and one institution-sponsored prepaid plan (Private College 529 Plan), but only 11 are currently accepting new applicants, and nine of these have residency requirements.
5 tips for a tax-free 529 plan withdrawal
A non-qualified withdrawal from your 529 plan could mean having to pay income tax as well as a 10% penalty on the earnings portion of the distribution. These five tips will walk you through the withdrawal process and maximize the value of your college savings.
How to transfer 529 plan funds to a sibling
There are a number of reasons why you might want to transfer 529 plan savings to a brother or sister. Some parents start with an account for their first child and want to split up the funds when the next baby is born. Or maybe one of your children decides not to go to college and you want to transfer the money to a younger sibling who will.
Top 5 mistakes to avoid when using a Coverdell ESA
A Coverdell Education Savings Accounts (ESA) is a trust or custodial account designed to help families pay for education. Just like a 529 college savings plan, a Coverdell ESA offers tax-free earnings growth and tax-free withdrawals when the funds are spent on qualified expenses. But there are certain limitations you should be aware of.
Parents can use a 529 plan to pay for K-12, but most won't
Savingforcollege.com recently surveyed over 1200 parents who are saving for a child’s education to gain insight on how they use 529 savings plans and prepare their children for college. Most parents will not use a 529 plan to pay for K-12 tuition, but many will involve their children in enrichment activities such as sports, volunteering and summer jobs.
Should college applicants be concerned about their social media profiles?
Colleges may look beyond a prospective student’s application during their evaluation process. According to a recent survey from Kaplan Test Prep, 68% of college admissions officers consider social media profiles like Facebook, Twitter and Instagram “fair game” when it comes to learning more about an applicant.
Parents regret not saving more for college
Most parents believe saving for college is a top priority, but many regret not saving more, according to a survey from Student Loan Hero. Learn how a 529 plan can help grow your savings and reduce the amount your child will have to borrow to pay for college.
How to save for college and still get financial aid
There are countless reasons why families should save for college, yet some parents fear that having money set aside will hurt their child's chances of getting financial aid. But the reality is, you may still qualify for need-based financial aid even if your child has a college fund.
Should you open an ABLE account for a child with a disability?
Individuals who are living with a disability have little incentive to plan for the future. Having even a modest amount in savings or assets can jeopardize eligibility to receive public benefits like Medicaid and Supplemental Security Income (SSI). That is, unless the funds are held in a 529 ABLE account.
How 7 different assets can affect your financial aid eligibility
Colleges and universities use the information from your FAFSA and federal tax return to calculate your Expected Family Contribution (EFC). However, not all funds are treated equal. The following slideshow explains the different effects that seven household assets can have on your financial aid eligibility.
529 funding strategies for K-12 private school tuition
Help clients take advantage of new potential tax savings by developing an effective 529 funding strategy for K-12 private school tuition costs. With a relatively shorter time horizon and $10,000 annual withdrawal limits, a new calculator is recommended when paying for private elementary and high school expenses.
When it comes to 529 plans, parents just don't understand
A study from Fidelity shows more parents are saving for college than ever before, but they are still confused about how 529 savings plans work. By missing out on these key benefits, including federal (and sometimes state) tax savings, and favorable financial aid treatment, they could be leaving money on the table.
Planes de ahorro 529 y matrículas en escuelas privadas
La ley de reforma fiscal del 2017 añadió ciertos beneficios al plan 529 para incluir retiros libres de impuestos para matrículas de escuelas de educación primaria o secundaria privadas, públicas o religiosas. Además, la nueva versión de esta ley permite que las cuentas tradicionales de 529 puedan realizar transacciones a otras cuentas ABLE sin impuestos o penalidades. Esta página incluye toda la información disponible acerca del tema y cualquier otro beneficio reciente de los planes 529: data de 1 de enero de 2018 y será actualizada con regularidad a medida que otros detalles se hagan disponibles.
How much can you contribute to a 529 plan in 2016?
As we enter the final months of 2016, many families are trying to make the most of their tax-advantaged savings accounts. If you're saving for retirement, you're allowed to deposit up to $5,500 to an IRA ($6,500 if you're over age 50) and up to $18,000 to an employer-sponsored 401(k). But what about college funds? That's where it can get tricky. While the IRS doesn't specify a specific dollar amount for annual contribution limits to 529 college savings plans, there are some rules you should be aware of if you're considering making a large deposit this year
New study: Are men too confident about college savings? Or are women too pessimistic?
According to Savingforcollege.com's Annual College Savings Survey, a person's gender may impact the way they save and pay for college. What's more, these differences may exist across a broader spectrum of financial attitudes and behaviors.
Tapping your 529 plan to pay bills
A good rule of parenting is to expect the unexpected. Yet, according to Bankrate, only 22 percent of Americans had enough money saved to cover six months of expenses in the event of an emergency, and 29 percent had nothing saved. So what happens if your family suffers from a sudden job loss, medical bills or damage to your home? In times of need, those without a liquid emergency fund sometimes view their 529 college savings plans as a source of cash. In some cases, this could be a viable option. According to Joe Hurley, CPA and founder of Savingforcollege.com, with a 529 plan 'You're not locked in, you can get at your money, and if your account has losses, you have some flexibility.'
Saving for college? These 6 mistakes can cost you
The best time to start saving for college is as early as possible, but most families have no idea where their newborn baby will attend college in 18 years. Because of this, parents often start a college fund with modest contributions of $25-100 a month – with no clear end goal in mind.
Will you spend too much this 4th of July? Depends on where you celebrate.
According to Wallethub, the average household is expected to spend around $346.50 on Independence Day this year. Costs will add up quickly, especially if you plan on traveling. Here is a list of the best (and worst) cities to celebrate the 4th of July this year.
Five questions to ask yourself when choosing a college savings strategy
College can be one of the largest expenses a family will ever face. There are a number of different options available to help you reach your goal, and here are a few things to consider before choosing the one that’s right for you.
Is it a mistake not to hire a financial planner?
When it comes to planning and saving for college, some families prefer to endure the journey alone, but others are willing to pay for professional guidance. DIY college planning may work for some, but here are 6 things you might be missing out on by not utilizing a financial professional.
How one summer of reading can help your kid succeed all year long
Keep your child active this summer by enrolling them in a summer reading program, and you could be eligible to win a 529 account worth up to $1,529! TIAA-CREF has partnered with libraries around the country to offer summer reading programs in many states.
The 10 states with the fastest rising college tuition
Tuition prices have been rising across the country, but some states have experienced sharper increases than others. If you're planning to send your child to one of the following ten states, you might want to consider increasing your 529 plan contributions.
9 ways America's college savings habits have changed
Sallie Mae's 2015 'How America Pays For College' report is fairly consistent with 2014's findings in how American families prepare for the costs of higher education. Here are 9 changes in some saving attitudes and behaviors that we thought we worth noting.
This year's top 10 best and worst jobs
Looking for a little motivation when it comes to saving for college? This year's list of the best and worst jobs of 2015 should remind you just how important that college education will be in helping your child or grandchild to achieve the job of his or her dreams.
Mint.com expert interview on paying for college
We recently had the opportunity to share our advice on funding higher education with Mint.com in their Expert Interview series. In honor of Financial Literacy Month, read though this interview to learn some great tips on the best ways to pay for college.
New research shows why families who aren't saving for college will have to borrow
New research has revealed just how much of an effect saving for college has on reducing the likelihood that a student will incur student debt. So why are Americans continuing to rely so heavily on student loans? Here are three factors that may be to blame.
What is your state doing to promote saving for college?
As tuition prices continue to skyrocket, many states are actively trying to raise awareness about the importance of saving for college. At this year's College Savings Foundation Conference, representatives from several states shared their thoughts with us on the best ways to promote saving for college.
[PODCAST] Melinda Lewis on the relationship between college savings and student debt
Just how much of an effect does a college fund have on the likelihood that a student will have to borrow? In this podcast, Kathryn Flynn and Melinda Lewis discuss new research on the relationship between saving for college and student debt.
Will the Student Aid Bill of Rights help your family?
Last week President Obama signed a presidential memorandum outlining a plan intended to help dissolve the student debt crisis. The Student Aid Bill of Rights focuses on four key issues related to helping students pay for college and helping graduates manage and repay their student loans.
7 ways the 2016 fiscal year budget could affect higher education
This week, the Obama administration released a 2016 fiscal year budget request, which details the President's plan to make education and job training top priorities. This slideshow lists the impact the proposed budget could have on certain areas of higher education.
5 reasons we were outraged by the President's 529 proposal
In the week following the President's surprising proposal to tax 529 plan withdrawals and subsequent dropping of the proposal, we began to wonder why it was ever brought up in the first place. After taking a closer look, here are five reasons we feel the president's proposal was based on some pretty misleading data.
What would you do with free community college?
In case you haven't heard, President Obama recently announced a plan that would allow some students to attend two years of community college for free. Here are five ways families could take advantage of the potential savings of this plan, should it come to fruition.
Which is best: 529 college savings plan or Roth IRA?
When it comes to choosing the best way to save for college, many people turn to tax-advantaged investment vehicles like Roth IRAs and 529 college savings plans. If you're on the fence about which savings vehicle to use, take a look at this breakdown of how each one works.
5 ways to get money for college this holiday season
Instead of receiving more trucks or dolls to add to your already overflowing toy chest, why not consider asking your loved ones to contribute to your child's college fund this year? View this slideshow to learn more about some of the creative 529 gifting programs available to help you do just that.
Savingforcollege.com's College Savings Month festivities
To celebrate College Savings Month, we’re featuring exciting new content dedicated to sharing our knowledge and answering your questions regarding 529 college savings plans and other planning tools. Here’s a quick list of what we’re currently offering.
[PODCAST] Getting started with a 529 plan - Step 1: Finding the best plan
529 accounts are relatively simple to set up, but with over 100+ different options available, even the most savvy investors are sometimes left wondering where to begin. In this new podcast series, we discuss the steps to take when setting up a new 529 college savings account.
Five reasons competency-based education might be for you
Competency-based education is a new trend in online higher education that caters to those who may have financial or time restraints that prevent a traditional college experience. Here are five reasons why this non-traditional type of college program might be for you.
A top college savings resource for grandparents
There are a number of different ways for grandparents to help save for college, yet for many the process can seem overwhelming. Here's an overview of the college savings resources we have available to help grandparents ensure their grandchildren have the best chance for success.
Top four savings essentials for young families
Having kids and the expenses to go with them can sometimes put savings goals on hold. Whether your first baby just arrived or your oldest is headed to middle school, it’s never too late to get your family’s savings plan back on track. Here are four tips on how to get started.
529 Day Q&A Webcast hosted by Savingforcollege.com
Mark your calendars! In honor of 529 Day, Thursday, May 29th at 1:00pm ET Savingforcollege.com is hosting a live webcast featuring the industry’s top experts. This is your chance to ask questions regarding 529 plans, financial aid and where college savings fits into your family’s financial plan.
Five of the best college savings apps
In addition to allowing you to track funds in a bank or investment account, there are also mobile apps available that offer some fantastic planning tools. This slide show highlights five apps that help parents, students and grandparents plan for the future costs of college.
Truth be told - Common 529 plan misconceptions
The results of our Annual College Savings Survey show that there are still many people who are unclear about the functionality of 529 plans. In this post, we discuss six common misconceptions and reveal the correct answers to help clear up some of the confusion.
Annual College Savings Survey results: Direct- or advisor-sold 529 plan?
Our survey results indicate many of our readers feel comfortable selecting their own investments, but there may be situations in which an advisor-sold 529 plan could be a better fit. Here are a few key questions to ask yourself:
The 529 plan Pot O' Gold is growing!
Many future college students should be feeling lucky this St. Patrick’s Day. A recent report announced that total investments in 529 college savings plans hit a record level of $227 billion. However, families still have a long way to get to the end of the rainbow.