This stands as one of the highest allowed 529 contributions in the country. And once you reach that level, your money still grows tax-free. Utah residents in particular may take a 5% income tax credit on their contributions up to a certain limit. In addition, the My529 Plan offers a diverse range of investment options.
A 529 plan could mean less financial aid. The largest drawback to a 529 plan is that colleges consider it when deciding on financial aid. This means your child could receive less financial aid than you might otherwise need.
Here are five of the top 529 plans : Ohio’s 529 plan , CollegeAdvantage. New York’s 529 plan , Direct Plan . Wisconsin’s 529 plan , Edvest. West Virginia’s plan , Smart 529 WV Direct College Savings Plan . California’s plan , ScholarShare 529 .
529 plans typically offer you unsurpassed tax breaks. Earnings in a 529 plan grow tax-free and are not taxed when they’re withdrawn. This means that however much your money grows in a 529 , you’ll never have to pay taxes on it. However, you do not get to deduct your contributions on your federal income tax return.
True or false: I will lose the money if my child doesn’t go to college or gets a scholarship and doesn’t need all the money . False. You don’t lose unused money in a 529 plan . You can withdraw the amount of any scholarship awards from your 529 without penalty; federal and state income taxes on the earnings still apply.
The minimum initial contribution amount is $50.00 per STABLE Account . The minimum subsequent contribution amount is $1.00 per STABLE Account . There is no minimum to open or contribute to a 529 account . With the automatic investment plan , the minimum contribution level is $15 per month or $45 per quarter.
A 529 savings plan is one of the best ways to save for a child’s college education, but there are alternatives. Custodial UGMA and UTMA accounts can be used for purposes other than education. Roth IRAs have tax advantages similar to 529 plans and they don’t count as assets for financial aid purposes.
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.
Disadvantages of using a 529 plan to save for college 529 plan funds must be spent on qualified expenses to avoid tax and penalty. Non-qualified distributions are subject to income tax and a 10% penalty on the earnings portion of the distribution. 529 plans owned by a third-party can hurt financial aid eligibility.
— The grandparent is the account owner, and the grandchild is the beneficiary. — The parent is the account owner and the grandchild is the beneficiary. So it is best to roll over from a grandparent -owned 529 plan to a parent -owned 529 plan in the same state as the grandparent -owned 529 plan .
One of the many benefits of saving for a child’s future college education with a 529 plan is that contributions are considered gifts for tax purposes. In 2020, gifts totaling up to $15,000 per individual will qualify for the annual gift tax exclusion, the same as in 2019 and in 2018.
You can only have one named beneficiary When you open a 529 , you need to name a beneficiary—one beneficiary. While your intent may be to fund the education of more than one child , you can only make tax-free withdrawals for qualified education costs of the named beneficiary.
A Roth IRA offers fewer tax benefits than a 529 plan IF the money is used for higher education. 529 plans allow for tax-free withdrawals of earnings, while Roth IRAs do not (at least, not until you’re age 59-1/2). Some states offer income tax deductions for contributions to a 529 plan. Roth IRAs never get this benefit.
Funds from a 529 plan that are not used for qualifying college expenses are subject to a 10% penalty and any gains are taxed at the parent’s marginal tax rate, which can be as high as 37% for tax year 2020 . If the beneficiary of the 529 plan receives a scholarship, the 10% penalty is waived.
529 Plan accounts are not “use it or lose it” accounts. The money in the account is always your to withdraw, but you will owe tax on the earnings when you withdraw money for non-qualified expenses. Those earnings will also be subject to a 10% penalty on the amount included in income.