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529 Plans

As parents we want to make sure that our kids have the best opportunities in life. One of those opportunities is college. Currently student loan debt in America is $1.6 trillion! Mine and Nathan’s goal for our boys is for them to graduate from college debt free. This is where a 529 savings plan comes in...but what exactly is that? Let me explain.

Each 529 plan has an account owner (usually the parent) and a beneficiary (the student). The owner controls the investments and chooses the beneficiary (which can even be themselves). Anyone can contribute and there are no income limits or age limits of the beneficiary. New laws in 2020 allow you to use 529 plans for K-12 public/private school tuition and apprenticeship programs.

The Account Owner makes contributions to the 529 with after-tax dollars and the earnings are tax-deferred. Tax-deferred growth and tax-free withdrawals make a 529 savings plan very appealing. A 529 savings plan allows you to choose a predetermined investing portfolio to grow your money. Investing in a 529 through Mutual Funds is the best way to go. This is great because you are able to have control over your investment.

A few of the benefits to a 529 Savings Plan:

  • No annual contribution limits (but may have to pay “gift tax” if more than $15,000 a year)

  • No age limits or income restrictions for contributions or distributions

  • Growth and Withdrawals are not subject to federal tax as long as used for qualified educational expenses

  • You can transfer funds to another child if one doesn’t use it all

  • You can withdrawal for non-educational purposes, but there is a 10% penalty plus taxes

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