The Power of 529 Savings Plans

A 529 savings plan is a tax-advantaged college savings plan designed to help families save for a child's college education or K-12. With the rising cost of college, it's never too late to save for your student's college tuition! The valuable advantages the plan offers include:

·         Significant tax credits and deductions that vary by state and your plan of choice. Learn more at collegesavings.org.

·         Flexible investment options with portfolios to match various risk comfort levels.

·         Affordable contribution levels make account opening easy.

·         All contributions to your account grow tax-deferred.

·         Distributions are tax-free from federal and state taxes if used for qualified higher education expenses or K-12.

Regardless of income level, any U.S. citizen or resident alien can open an account. Generally, any U.S. citizen or resident alien can be named a beneficiary as long as they have a social security number or federal tax identification number. If the beneficiary decides not to attend college right after high school, there is no penalty because there are no restrictions on when you can use the money from your 529 account to pay for college expenses. If the designated beneficiary decides not to attend college, you have several options. You can either name another beneficiary who is a family member of the same family as the original beneficiary, defer the use of education savings and leave contributions invested, or withdraw assets in the account that would be subject to state and federal income tax plus a penalty on the earnings, and subject to recapture of state tax credits claimed in Indiana. 

Multiple people can contribute to the same 529 accounts up to the maximum contribution limits. However, it's important to check with your state's plan to understand who will be eligible for specific state tax incentives because, in certain states, only the account owner is recognized for tax benefits. The account owner retains control of the money and chooses the portfolios they invest in, and the distribution of funds. Accounts may lose value, and investment returns will vary depending on the performance of the portfolios you choose and market conditions. 

To ensure your distributions are free from federal and state taxes, they must be used for qualified higher education expenses or K-12. Qualified education expenses include tuition, computers, mandatory fees, books, supplies, and equipment required for enrollment or attendance. Certain room and board costs during any academic period where the beneficiary is enrolled at least half-time, and certain expenses for special-needs students are included. 

Assets in the 529 savings account can be used toward the costs of nearly any public or private, two-year or four-year college nationwide and 400+ international schools. Suppose the student is enrolled in a U.S.-accredited college, university, graduate school, or technical school and is eligible to participate in the U.S. Department of Education student aid program. In that case, it is considered an eligible educational institution and a qualified withdrawal of the money from a 529 savings account. Please note that financial aid programs offered by educational institutions and other non-federal sources may have their own guidelines for using 529 plan accounts, and you should consult with a financial aid professional to be certain since rules and regulations often change. Before investing, it's important to read the disclosure of any plan thoroughly. Learn more about 529 plans here.