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Posted by David Schleis, EA

Exploring the Details of a 529 Savings Plan

Exploring the Details of a 529 Savings Plan

This is David Schleis from DS Financial Advisors, Inc and together with my colleagues I help families set up 529 Savings Plans in Pennsylvania. We are a group of experience tax preparers and accountants that comprehend the benefits and details surrounding this educational savings program. If you have a child, or a child in your life, we recommend that you find a tax professional in your area who can help you set up the 529 Saving Plan to prepare for their educational future.


What is a 529 Savings Plan?

In recent years, the cost of tuition has increased at an astounding rate. Most parents are not in a position to pay the full cost of their child's higher education. Sadly, many end up dipping into their own retirement and long term life savings to make education a possibility for their loved ones. The 529 Savings Plan is a tax exempt option offered by the federal government. This plan is solely set forth for the saving of educational funds.


How is the Money Invested?

Each state in the country offers a selection of different 529 Savings Plans. Fortunately, you have a choice between each of these plans, not solely the ones set forth by your state of residence. By finding a tax professional to work with you can choose the correct plan for your investment style and preferences. There are currently more than one hundred and ten different 529 Savings Plans available to tax payers. Some will have more aggressive investment strategies than others.


What Can the 529 Money be Used for?

The money saved in a 529 Savings Plan are used for education. However, this does not mean that the beneficiary has to use the money for their first four years of college. The funds can be applied to trade schools, technical school, and even graduate study programs. As long as the money is paid to an educational institution for the fees of tuition, supplies, and books, the educational uses are very flexible.


Who Can Contribute to a 529 Savings Plan?

Absolutely anyone can contribute to a 529 Savings Plan. The beauty of this system is that every person that contributes receives a tax deduction for that contribution amount. Also, anyone can set up a 529 Savings Plan. This means that a grandparent could even start the plan for their grandchild, and then anyone who contributed to that plan would receive the tax deduction. If you want to open or contribute to a 529 Savings Plan, find a local tax preparer or accountant to help you get the money in place for all of the deductions that you are due.


Who Can be the Beneficiary of a 529 Savings Plan?

A benefit of this plan that is often overlooked is the ability to change beneficiaries. If, for example, a 529 Savings Plan is opened for your oldest child, and they decide to join the military instead of going to college, that account can be transferred to another child in the family. In this way these plans can also be split between multiple children. Instead of joining the military, maybe that child chooses a college that costs far less money than is saved, or maybe they receive scholarship and grant money to offset their tuition costs. The money that is not used toward that child can be moved to another child, by turning them into the new beneficiary.


What Happens if the Money is Not Used for Education?

As the 529 Savings Plan was created for educational savings, the money is strictly meant for that purpose. To that end, if the account creator attempts to pull the money out of the account for their own personal spending needs, they will be forced to pay a significant penalty. The cost of that penalty varies state to state. However, if the beneficiary happens to receive a full scholarship to their school of choice, therefore nullifying the need for the savings, the account holder may remove the money without paying the penalty.


How Many 529 Savings Plan Accounts Can You Have?

It is possible to have more than one 529 Savings Plan accounts. These accounts can even be spread over multiple states. If you are looking to take this route, find a tax preparer who is well versed in the plan, to help you avoid any state taxes or penalties that you may not be aware of. Multiple savings accounts can be consolidated in some instances, though there are regulations regarding this merger.


What are the Maximum Deposit Amounts?

As it currently stands, the most a single person can contribute to a 529 Savings Plan in one year is $14,000. This means that a parent wishing to contribute to their son's plan, can only add that much each year. Both parents combined could contribute $28,000 to the son's account. If they have more than one child with open plans, they are able to contribute that maximum amount to each child. For some contributors who find themselves in a windfall, there is the possibility to “front load” the savings contribution in a five year increment. Once that $70,000 maximum is contributed, they cannot place more money into the account for five years.


If you are considering a 529 Savings Plan, contact me, David Schleis of DS Financial Advisors, Inc today. I can help you get the plan in place, select the proper forms of investment, and distribute the necessary information to possible contributors in your child's life.




David Schleis, EA
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