How to Navigate the Ins and Outs of 529 College Savings Accounts for Maximum Value
College tuition plans, also known as “529 plans,” continue to be a topic of considerable conversation among families and financial professionals alike as parents (and other loved ones) contemplate how to pay for a child’s college education. 529 plans offer substantial tax benefits as the funds within them generally are not subject to income tax, as long as they are spent on expenses at a qualifying post-secondary institution. If your family is considering opening a 529 account, or already has one in place, it is essential to understand the rules regarding these accounts to ensure you get the most for your money.
The beneficiary for whom you open a 529 account doesn’t have to be your child. He/she can be anyone with a Social Security number, including yourself. So, as you contemplate gift-giving during this holiday season, be aware that contributing to the education of your niece, nephew or grandchild is one option.
If, however, you’ve long since opened you child’s 529 account, and have been efficient at funding it, take note that 529 accounts have cumulative contribution limits, U.S. News and World Report recently warned. The limit in New Jersey is $305,000; in New York, it’s $375,000. Most states’ plans have limits between $350,000 and $375,000, but you are not required to utilize a plan from your home state. Some families may fear investing early in a 529 account, wondering, “What if my child doesn’t go to college?” 529 accounts still have value, even if your child does not attend a traditional four-year institution. As Carrie Schwab-Pomerantz, Senior Vice President of Charles Schwab & Co., Inc., recently explained, expenses at many two-year colleges, trade school and vocational institutions also qualify under the 529 program. Typically, if a school is eligible to participate in the U.S. Department of Education’s student financial aid programs, you can spend your 529 funds on it.
Additionally, the beneficiary of a 529 account is not set in stone. In fact, you can change the beneficiary of a 529 account as often as once a year. If your child decides against post-secondary education, you may simply amend the beneficiary to someone else, such as another family member, or even yourself. The funds in a 529 account also need not be spent on one person. For example, say you opened a 529 account for your daughter, who ultimately opted against college. You could alter the beneficiary to be your niece, and help pay for her college expenses. If your niece does not exhaust the account, you may change the beneficiary again. You may even re-name your original daughter, should she later decide to go back to school.
For many families, putting together an advance plan of saving is an essential element of planning for college. Many options exist, and several of those offer significant tax benefits. To get the best advice about what college savings options make the most sense for your family, consult the experienced tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. Their skill and experience can help you put together a savings plan for your child or other loved one. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.
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