The cost of higher education is going up, but that shouldn’t get you down. College savings accounts known as 529 plans provide significant benefits to individuals.
Whether you are considering saving for your own education or you are a parent trying to save for your child’s education, the flexibility, transferability, and tax implications make 529 plans very appealing.
What are some advantages of 529 plans?
The main tax advantage of 529 education plans is that earnings and any withdrawals are not subject to federal tax and generally not subject to any state tax when used for qualified education expenses of the designated beneficiary
These costs include tuition, fees, books, room and board, and other equipment required for enrollment or attendance at an eligible educational institution.
Also, many states offer certain tax breaks associated with college saving plans. For example, Utah residents who contribute to an education savings plan are eligible for a tax credit.
For 2016, individual filers are eligible to claim up to $95 in tax credits per qualified beneficiary. Married filing jointly taxpayers can claim up to $190 in tax credits per qualified beneficiary. To maximize these credits, single filers must contribute $1,900, and joint filers must contribute $3,800. Taxpayers are allowed to contribute to multiple accounts and claim the corresponding credits for each qualified beneficiary.
529 education savings plans are low maintenance and easy to establish. Also, there are no income limitations for contributing and receiving the tax benefit.
Plans or assets are generally transferrable to another beneficiary if the original beneficiary doesn’t use the funds.
Every state has different rules and regulations that govern 529 plans including potential deductions or credits.
Consulting with your financial advisor and/or accountant is an important step to determine the best course of action. If you are interested in establishing a 529 plan, please contact an accountant at Cook Martin Poulson, P.C.