529 Plans: Not Just for Higher Education Anymore

Posted on: August 15th, 2018

If you’re looking for a way to invest for your child’s or grandchild’s education, you may want to take a closer look at investing in a 529 savings plan.

The Tax Cuts and Jobs Act modified the Internal Revenue Code, expanding the use of 529 plans from being used only for higher education expenses to include up to $10,000 a year per student in primary and secondary education expenses. If you pay for private school tuition, for example, you don’t have to wait until your child goes to college to tap into 529 savings. The tax law change allows the use of 529 plans for private school tuition — which means many families can take advantage of the tax benefits of a 529 plan now.

What Is a 529 Plan?

The term “529 plan” refers to Section 529 of the tax code that authorized the creation of tax-advantaged college savings plans. These “qualified tuition programs” are run by states, state agencies and educational institutions. There are two types of 529 plans: prepaid tuition plans and college savings plans. While both plans offer tax advantages, we’re focusing on college savings plans.

Contributions to 529 plans are not tax deductible, but earnings grow tax-deferred. Withdrawals are not taxed when used for qualified educational expenses, such as:

  • Tuition
  • Fees
  • Books
  • Room and board
  • Computers, tablets, printers and educational software
  • Other school-required equipment

Funds can be used at accredited universities, colleges, graduate schools and some international educational institutions. Under the new tax law, funds can also be used to pay for K-12 private school tuition.

Some states offer more than one plan and many have no residency restrictions. Several states offer tax advantages, credits, matching grants and other benefits to those who contribute to a 529 plan in their home state, so check those first when making a choice.

A 529 plan can affect a student’s eligibility for need-based financial aid, but the impact is minimal.

Are There Contribution Limits?

Your contributions are invested into beneficiary-designated accounts. Plans offer several investment options, which may include money market, stock and bond portfolios. Minimum and maximum contributions vary from state to state. Some plans allow you to make contributions through payroll deductions or automatic payments.

Is There Risk Involved?

These plans don’t lock in tuition prices like prepaid tuition plans, nor are the investments guaranteed or backed by the state. Your investment options may lose money or the plan may not grow enough to pay for all school-related expenses. Check the disclosure statement for information about fees and other charges.

As with any investment, speak with a financial advisor to learn if contributing to a 529 plan is right for your family’s needs. Contact your Seaside Client Advisor to schedule an appointment.

Please note that neither this financial institution nor any of its affiliates give tax or legal advice. Consult your tax advisor regarding your individual circumstances.

Investment products:
Not federally insured
Not a deposit of this institution
May lose value

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