A 529 tax deduction is a specialized savings plan that parents put in place to help save up for when their kids go off to college. This special savings account can be used to help parents pay for the expenses that occur from college, and it is a tax-free program. Most parents who set up a 529 plan find that they are able to achieve the college goals they had for their kids. Below are answers to eight common questions about the 529 plans that people have.
1.) If I have Two Kids, Do I Make Two 529 Plans?
It is possible to have a 529 plan under only one of your child’s names if you plan to send more than one of your kids to college. Doing it this way would mean you would only have to pay annual and/or quarterly maintenance fees for once account instead of having to pay it for multiple accounts. However, it is generally recommended to open a different 529 account for each child that you have so that you keep the finances of each investment in order.
2.) What Are The Steps For Setting Up A 529?
The most difficult step for opening up a 529 account is selecting the right college plan for parents starting out. After you select the right college plan for you and your family, you then visit that plans website. Once there you open an account- or more than once if you have multiple children and want an account for each of them. Choose the type of investment you want, then fill out an submit your application. Once it is approved you can start depositing funds and setting up a bright future for your kids!
3.) What Are The Benefits For Making a 529 Plan?
Apart from setting up an account that will help you put your kids through college, there are several benefits for opening a 529 plan for your kid(s). 529 plans are investments that are tax-deferred, and when you open an account and start depositing funds, your account will automatically begin earning interest. You can contribute as much or as little as you want or can afford, and your money in this account is portable. The money in this account can only be used for your child’s college tuition so it is protected from being misused. Having a 529 for your child can affect how much they can receive in financial aid, but that may not matter if you have been diligent in putting money into the account.
4.) What happens if you don’t use the plan?
If your child decides not to go to college, and you want them to be able to use the funds for something else, that is possible but it comes at a price. For this to happen you have to pay federal income taxes on the money and will have to pay 10% in penalty charges depending on how much you have in the account.
5.) Can you lose money from the account?
A 529 plan cannot lose your money even if your child does not need all the funds in order to pay for college. In this case, the money can be saved in case that child wants to get additional education if you have another child that needs the funds, and you can even use it for yourself if you want to pursue further education.
6.) Can I transfer my 529 funds to my kid?
If you have a 529 account set up for your own education, you can transfer those funds to any of your beneficiaries. These changes do not affect your income taxes, but the funds can only be transferred to a beneficiary in your immediate family.
7.) Can A 529 Plan expire?
529 plans do not expire. Ever. Because of this, the person who the account is created for can pursue their education at any point in their life- even if its when they reach retirement age. The funds in the account will continue collecting interest so that there will be plenty whenever you decide to pursue higher education.
8.) Can I use my 529 anywhere?
The 529 is a portable fund and will move along with you. No matter what you state you are located in, you can use the funds in the account to cover tuition costs, book fees, dormitory fees, food plans, and even a computer if you need one for your classes!