- What is it? An investment account for college savings that lets you grow your money tax-free and spend it tax-free.
- Do I need it? Yes, if you have kids that plan on going to college.
- How much can I contribute? While there are no annual limits, if you give more than $15,000 per year to your kid, you’ll have to pay a gift tax between 18% – 40%. But that’s each parent, so together you can contribute $30,000 without hitting the gift tax. Grandparents can contribute too. Every state’s 529 plan allows for a maximum total contribution, anywhere from $235,000 to $500,000 per kid.
- Any tax savings on contributions? Yes. More than 30 states give out tax deductions or credits for contributions.
- What if my child gets a scholarship? Congrats! If your child receives a scholarship, you can withdraw the exact amount contributed to the 529 plan and use it for anything without a penalty. Note: You will need to pay tax on any earnings just like if you made money in a regular investment account.
- What if my child doesn’t go to college? The good news is you could use the funds for other children in your family who do attend college by changing the beneficiary of the account. You can always use the funds for other types of school too – like trade or vocational schools. 529 money that is used for non-educational expenses are taxed at 10% of the earnings + income tax. Exceptions to the rules are made for circumstances such as death or disability.
- Did you know?
- 4%-8% | average interest earned on 529 Accounts
- $22,620 | amount you earn on $10,000 @ 6% interest over 20 years
- $42,280 | Average annual cost at a public out-of-state university 2020-2021
- $54,800 | Average annual cost at a private university 2020-2021
- $78,417| Average annual cost for Ivy League Schools 2020-2021
- Why? Because you’re smart enough to start saving while diaper changing.
- More info: What is a 529 Plan?
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