Posted by Abundant Wealth Planning LLC

Benefits of 529 College Saving Plans You Might Not Know

Benefits of 529 College Saving Plans You Might Not Know

Very few Americans, less than 35%, are aware of 529 college plans. Of this meager number of people, about 25% use the plans for higher education. Users might link tax-deferred savings as their primary benefit and the opportunity to withdraw tax-free on all education that qualifies. Few value state-tax incentives like a tax credit or exemption from financial aid assistance from schools in some states.

 

However, you get other advantages linked to the college saving plans that exceed the tax benefits. Here are some of the benefits:

  1. Apprenticeship Program Qualifies (Registered)

It is possible to have qualified withdrawal from your 529 plans for the apprenticeship program that are registered. Nationwide, there are more than 24,000 apprenticeship programs based on the US Department of Labor. These programs take care of a series of industries like manufacturing, engineering and healthcare. For anyone who completes his or her apprenticeship program, there is an annual salary of $70,000.

  1. Qualifications Usually Include International Schools

More than 400 schools that are not on US soil alongside its territories are classified as higher education institutions. The implication is that one can have tax-free withdrawals from 529 plans for expenses that qualify at such colleges. 

With this, your beneficiary might be schooling at the University of Kent and still qualify. The list of such schools is available at the US Department of Education.

  1. Opportunity to Get Your Money Back if You are not using it for College 

You will have to pay tax on any withdrawal from the 529 plan that is not qualified, alongside a 10% extra tax. It is, however, possible to avoid the 10% penalty if your beneficiary meets some conditions. This transforms the plan from tax-free to tax-deferred. 

Here are things the beneficiary needs to do to qualify. The beneficiary needs to

  • Get a tax-free grant or scholarship. With this, one can withdraw, which is the same as the grant, which will not have a penalty in the award year.

  • Attend a military academy in the US

  • Become disabled or passed away. In some cases, however, it might be possible to roll 529 plans to an ABLE account for people that qualify. 

For people to whom any of the above situations apply, ensure to talk to a professional to guide you. You might still get your money back if none of these applies to you. One can revoke 529 plans; in other words, pulling back the entire asset into the owner's account is possible. This, however, comes with a tax penalty.

  1. Private K-12 also Qualifies

You can use 529 withdrawals for as much as $10,000 of tuition at private schools. However, other expenses like travel, supplies, and others are not qualified.

It is possible to use as much as $10,000 of tuition for private schools.

  1. Pay Your Student Loans 

Some families take student loans even with sufficient savings. They do this even without the confidence that their savings will take care of everything. 

People who graduate with a couple of money in their 529 accounts can take care of $10,000 of some student loan repayment. 

  1. One of the top Estate Planning Tools

Whatever you contribute to your 529 plan is classified as a gift to the beneficiary, with the possibility of being a "superfund” for as much as $75,000 for each beneficiary in a year. It can even engage five years worth of annual gift-exempt tax upfront. 

For retired people with Required Minimum Distributions from their qualified account like 401(k)s alongside the traditional Individual retirement accounts. The 529 plans give higher contribution limits for a series of beneficiaries without letting go of the asset while the account owner is still alive. 


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