529s – A Jack of All Trades Account

In recognition of National 529 Day (5/29), each May I aspire to write a captivating missive on the rather bland topic of 529 Plans. Yet it seems rightly so to continue with these efforts, because according to a recent Edward Jones study¹, only about half (50%) of Americans know what a 529 Plan is and fewer than a quarter have a 529 Plan.

So rather than explain every intricate detail of what a 529 Plan is (which can be found in my article “Savings with a 529 College Plan”), let’s look at some known and little-known ways these accounts may be used to benefit most individuals and families.

• K-12 Education Expenses:
• • Most states allow distributions up to $10,000 per year to be applied toward private elementary or secondary school tuition expenses, per beneficiary.

• College Expenses:
  • Money in a 529 account can be withdrawn to pay for certain qualified college expenses such as tuition, mandatory fees, room & board, books, computers.

• Apprenticeship Program
  • Distributions from a 529 may be used to pay for certain expenses associated with an apprenticeship program registered and certified with the Secretary of Labor.

• Postsecondary and Trade Schools
  • 529 Plans can be used to pay for postsecondary education at trade schools – such as Cosmetology, Plumbing, Chef, or Dental Hygienist programs.

• Study Abroad
  • 529 Plans can be used to pay for study abroad programs for expenses such as room and board.

• Special Needs Children
  • 529 funds can be rolled over to an ABLE account to help pay for qualified disability-related expenses.

• Computer and Internet Technological Needs
  • A 529 Plan can be used to cover the costs of Internet services and the purchase of a new computer, laptop, or printer for the beneficiary while enrolled in a qualifying program.

• Student Loan Repayments
  • A lifetime limit of $10,000 can be withdrawn from a 529 account to repay a student loan, per beneficiary.

• Scholarship Flexibility
  • 529 Plans allow for distributions to be taken in the amount of the scholarship a student receives without penalty.

• Beneficiary Flexibility
  • Money in a 529 account can be transferred from one beneficiary to another; for example, from a parent to a child or from a sibling to a sibling. That’s right, parents can name themselves as beneficiaries, and this might help them receive State Tax Benefits.

• State Tax Benefits
  • Over 30 states offer a tax credit or deduction for contributions made to a 529 savings plan.

• Backdoor Roth
  • Up to $35,000 of 529 savings can be converted to a beneficiary’s Roth account. For those persons who earn too much to contribute directly to a Roth account, this is an excellent method to get savings into a Roth account. Learn more here.

• Grandparent Loophole
  • For those families or children who are seeking financial aid assistance, distributions from a grandparent-owned 529 can be used to fund their grandchild’s college expenses without harming their financial aid eligibility. And for extremely wealthy grandparents, they can use a 529 to shelter assets from federal estate taxes.

• Continued Learning
  • Parents can use a 529 Plan to pay for continuing education or graduate courses at eligible colleges or universities.

So while the uses for 529 accounts are not limitless, there’s a very good chance that one might fit nicely in your overall financial plan. If you have questions, we’re here to help…

Sources/Info:

• https://www.edwardjones.com/us-en/market-news-insights/personal-finance/education-savings/529-survey

This material is for informational or educational purposes only.

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