Make Ends Meet: Benefits of a 529 college savings plan

LOUISVILLE, Ky. (WAVE) - It’s never too early to start saving & planning for your college education.

One of the best ways parents, families, and even students can pay for their higher education is with savings plans like the 529 plan. You give a little money on a regular basis, and it can compound over time growing to become that investment you need to help pay for your dream of a higher education. Martha Kortiak Mert is Chief Growth Officer for Savingforcollege.com, where she leads initiatives to bring innovative solutions to consumers and professionals in the college savings marketplace.

“A 529 plan is a specialized investment account that is designed specifically for families that are saving for education,” exclaimed Mert.

You must be a U.S. resident over the age of eighteen. You don’t have to be a high school student. You can be at any point in your life to start or use a 529 plan for your education.

“It offers tax advantages that give you benefits over saving any other way,” explained Mert.

529 college savings plans let you pre-pay all or part of the costs for any accredited college, university, community college, technical school, graduate school, or department of labor apprenticeship program. “Anyone” can start a 529 savings plan for you. You can even start one for yourself.

“Most commonly parents open them for their children,” shared Mert. “Probably the next biggest group is grandparents opening them for grandchildren.”

49 states and the District of Columbia each offer at least one 529 plan. Wyoming is the only state without a plan.

“You can look and see what’s offered by your state,” explained Mert. “You can look if you have any special benefit in your own state’s plan.”

Your state may have a tax benefit for a deduction or credit on your state income tax contributions that you make. Look closely at any 529 plan for every state you consider.

“So, if your state doesn’t offer any special benefit you can also look around and see what else is out there,” shared Mert.

You can look at what other states have to offer and pick your 529 plan from almost anywhere in the nation. Just pay attention to each state’s regulations. Some states require you to be a resident to use their 529 plans, but most do not.

“You can live in Kentucky,” explained Mert. “Open a plan in New York. Send your child to school in California.”

As you put money aside with your 529 college savings plan the funds in your account accumulate tax-free.

“So, it grows tax-deferred, and you can take the money out tax free as long as the money is being spent on qualified education expenses,” shared Mert.

Tuition, room, board, books, supplies- those are some expenses that qualify. If you withdraw funds for a non-qualified expense, the earnings portion of the withdrawal will incur income taxes on the earnings portion of the allocation and an additional 10% penalty on those earnings.

“The withdrawals that you make need to match qualified expenses in the calendar year,” stressed Mert.

You can change the chosen beneficiary if you are the person who set up the 529 plan. Changing who you give the money to is up to the person who sets up the account. Things change and so can the beneficiary. There are some limitations but if your child or your grandchild decides not to go to college you can give it to anyone including yourself for continuing education. If you don’t use it for education at all you’d have to pay taxes and penalties on the withdrawal of the money saved.