Another school year is approaching. And if you have young children, they are now one year closer to going to college or some other type of post-secondary education or training. So, if you haven’t already, you might want to start preparing for these costs.
And they can be considerable. For the 2022-23 school year, the estimated average annual cost (tuition, fees, room and board, books, supplies, transportation and other personal expenses) was nearly $28,000 for the state’s four-year public schools and more than $57,000 for private ones. four-year nonprofit schools, according to the College Board.
Of course, some students don’t pay the full college bill. Any grants and scholarships they receive can lower the “sticker price.” Even so, there is often a considerable amount that students and their families have to come up with. To help fill this gap, you may want to explore several strategies, one of which is a 529 education savings plan.
A 529 plan offers several key benefits. First, your earnings can grow tax-deferred, and your withdrawals are federal tax-free when used for qualified education expenses such as tuition, fees, books, etc. You may be able to invest in a 529 plan in most states, but depending on where you live, you may be able to deduct your contributions from your state income tax or possibly receive a state tax credit for investing in the plan 529 from your home state. The tax issues of 529 plans can be complex. Please consult your tax advisor regarding your situation.
And 529 plans aren’t just for college. You may be able to use one to pay for K-12 expenses, up to $10,000 per student per year. (However, not all states comply with this 529 expansion for K-12, so you may not be able to claim deductions and your withdrawals could be subject to state tax penalties.)
A 529 plan can also be used to pay most expenses related to apprenticeship programs registered with the US Department of Labor. These programs are often available at community colleges and combine classroom education with on-the-job training.
In addition, you can now withdraw funds from a 529 plan to pay off qualified federal student and private loans, up to $10,000 for each beneficiary of the 529 plan and an additional $10,000 for each of the beneficiary’s siblings.
But what if you have named a child as the beneficiary of the 529 plan and that child does not want to pursue any type of advanced education? If this happens, you, as the account owner, are free to designate another family member as the beneficiary.
And starting in 2024, you may have even more flexibility if a child opts out of college or other postsecondary education. Due to the passage of the Secure Act 2.0 in December 2022, unused 529 plan funds of up to $35,000 may be eligible to roll over to a designated beneficiary’s Roth IRA.
One of the qualifications for this rollover is to have had your 529 plan for at least 15 years. To determine if you qualify for this transfer, you will want to consult your tax advisor.
A 529 plan has a lot to offer, and may be something to consider for your family’s future.
Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10% penalty. Be sure to discuss potential financial aid impacts with a financial aid professional.
Edward Jones, its financial advisers and its employees cannot provide tax or legal advice.
Jennifer Barrett (AAMS) is a local financial advisor at Edward Jones.
225-612-0413 | jennifer.barrett@edwardjones.com
Edward Jones. SIPC member.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate planning attorney or qualified tax advisor regarding your situation.
This article was written by Edward Jones for your local Edward Jones Financial Advisor.
