529 Plans (College Savings Accounts)
A 529 plan is a tax-advantaged savings plan designed to pay the beneficiary's qualified higher education expenses, such as tuition, fees, books/supplies, and room and board. Anyone can open a 529 account, but they are typically established by parents or grandparents on behalf of a child or grandchild, who is the account's beneficiary.
Earnings in a 529 account grow tax-deferred, and withdrawals are tax-free if they're used for qualified education expenses, as defined by the IRS. Withdrawals from a 529 savings plan can be used for both college and K-12 expenses. Any other withdrawals are subject to taxes plus a 10% penalty, with exceptions for certain circumstances, such as death or disability.
Important Information to know:
· 529 plans may be used for up to $10,000 per year on K-12 tuition expenses.
· Many states offer a tax deduction or credit for contributions made to the in-state 529 plan,
while others offer a deduction for contributing to any 529 plan. These tax implications should be considered before investing in an out of state plan.
· If you're a New York taxpayer and are contributing to a 529 plan, you can deduct up to $5,000 ($10,000 if you're married filing jointly) of your 529 account contributions when you file your NY State income taxes.
· Secure Act 2.0: Starting in year 2024, if your 529 plan has been open for 15 years, the new federal legislation gives the beneficiary the ability to transfer 529 plan funds into their own Roth IRA without paying taxes or penalties. The criteria for that rollover eligibility is that the account must be open for at least 15 years, and that the beneficiary must have earned income for at least equal to the amount of the rollover (currently $6,500 yearly limit). The lifetime limit for rollovers is $35,000. Contributions made in the last 5 years are ineligible for a tax-free transfer.
Participation in a 529 Education Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution. Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals. Check with your state's guidelines prior to withdrawing the funds.
An investor should consider, before investing, whether the investor's or designated beneficiary's home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.
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